IFRS in the media sector - Grant Thornton

IFRS in the media sector 

A survey highlighting accounting policies and practices 

covering business combinations, revenue and IP rights 

March 2010

Contents 

Page 

Page 

Page 

Foreword 3 

Introduction and key findings 4 

Chapter 1 – Business combinations 10 

The background 11 

The deals 12 

Content v Contracts 13 

Interpretation stretch 14 

Residual goodwill and ‘synergies’ 16 

Analysis of business combinations 18 

Audio & televisual 

companies analysis 18 

Advertising & marketing services 


Publishing and events 


Overall comments and conclusions 28 

Chapter 2 – IP rights 29 

The background 30 

IFRS for SMEs 30 

The IAS guidance 31 

Audio & televisual companies analysis 32 



Publishing & events 



Chapter 3 – 

Revenue recognition and segmentation 41 

Sector-wide segmentation analysis 42 

Audio & televisual companies 

revenue analysis 45 

Publishing & events companies 

revenue analysis 52 


companies revenue analysis 55 


Appendix 1 

List of companies surveyed 60 

Appendix 2 

Business combinations surveyed 62 

Appendix 3 

IFRS for SMEs – how might this affect 

the media sector? 66 

Appendix 4 

Sale and leaseback revisited 70 

About Grant Thornton 71 

Contacts 72 

2 IFRS in the media sector

Foreword 

Foreword 

This is the fourth Grant Thornton survey of accounting practices in 

the media sector. Our latest survey looks at the effects of the 

introduction of IFRS across those UK media companies quoted on 

the London Stock Exchange Full List and AIM. 

Our previous three surveys focused on 

the areas of revenue recognition, rights 

recognition and rights amortisation in 

the UK film and television sectors. 

When we published our first survey in 

2001, we wanted to create a debate in 

the area of UK film and television 

accounting that would lead to better 

disclosure, and greater consistency and 

transparency in financial reporting of 

revenue and rights recognition. We also 

wanted to improve the understanding 

between the sources of funding in the 

City and the creative businesses in 

the West End. 

Although financial reporting in the 

sector has moved on since 2001, 

a number of factors have caused us to 

take up the debate once more, this time 

right across the quoted media sector: 

• the introduction of IFRS, and with it 

the development of segmental 

reporting and the requirements of 

accounting for business combinations 

• convergence across the media sector 

• the development of the digital 

economy. 

The sector has come a long way from 

the days when the revenue policy of 

many media companies read: ‘turnover 

comprises the value of goods and 

services invoiced to customers net of 

credit notes and value added tax’. It still 

has a long way to go though. Accounting 

policies are too often lazily drafted, 

without enough thought being given to 

the reader of the financial statements. 

We would ask all companies and their 

advisers to think more about the reader 

of financial statements and how to get 

across to those readers the inherent 

differences between the media sector 

and other sectors. 

Where does the media sector go next? 

There is much to be done in the area of 

business combinations. The gap in 

understanding between the City and 

the West End still exists, and it is up to 

all of us in the frontline of financial 

reporting to work to close that gap. 

Terry Back 

Partner 

Grant Thornton UK LLP 

Steven Leith 

Senior Manager, Assurance 

Grant Thornton UK LLP 

IFRS in the media sector 3

Introduction and key findi 

After over a decade of discussion, anticipation and false starts, convergence in the media sector is 

finally happening. As audio, televisual, publishing and advertising businesses fight for space on the 

internet (well – not so much space; more like brand awareness in the ever-growing community that 

makes up the web), their business models twist and turn as they repackage and reinvent their offerings 

to grab the attention of the consumer within the marketing battleground that the internet has become. 

The media sector is still characterised 

by its diversity, both in terms of 

company size and business activity. 

Even with the advance of digital media, 

traditional activities still dominate the 

revenues and profits of most businesses 

in the sector and despite the advent of 

convergence, these are still significantly 

different from each other so as to 

deserve segmentation. 

It is questionable whether such 

segmentation will still be relevant in five 

years’ time, but for now we have split 

the quoted UK media sector into three 

principal business areas in an attempt 

to improve comparability: audio & 

televisual, publishing & events and 

advertising & marketing services. 

Publishing & events – these are 

businesses that derive their revenues 

from the origination, development and 

exploitation of both online and 

traditional print media such as 

newspapers, magazines and books, 

together with the closely related 

activities of conference, exhibition and 

event organisation and promotion. 

Advertising & marketing services – 

these businesses derive their revenues 

by attracting public attention to the 

products or businesses of their clients, 

through paid announcements in the 

print, broadcast, or online media and/or 

provide many other ancillary services 

such as market research, public relations 

advice, direct mailing or sponsorship. 

Other – certain media businesses do not 

fall in the first three sectors. Companies 

in this group include the toys and games 

company The Character Group, artist 

representation group First Artist 

Corporation and emerging digital 

companies, such as ASG Media Group. 

We have not analysed this group as it is 

small and diverse, so comparison would 

not be particularly useful in our survey. 

Many companies have areas of overlap 

between the sub-sectors. Our analysis is 

based on a subjective view of the best fit 

of the companies’ activities based upon 

the information contained in their 

published annual reports. 

Audio & televisual – these are businesses 

that derive their revenues from the 

origination, development and 

exploitation of films, music, television 

and radio programming. 

Table 1. Analysis of companies in survey 

Total sector 

market cap 

at 18.1.10 

Sub-sector (£‘000) 

Number of 

companies 

on AIM 

Number of 

companies 

on full list 

Number of 

companies 

delisted or no 

longer trading 

at 18.1.10 

Total number 

of companies 

included in 

survey 

Audio & televisual 12,971 28 6 3 37 

Publishing & events 22,321 5 19 2 26 

Advertising & 

marketing services 

9,933 27 7 10 44 

Other 158 12 0 4 16 

Total 45,383 72 32 19 123 


Introduction and key findings 

ngs 

Market size 

As at January 2010, the market 

capitalisation of quoted companies in 

the media sector totalled c.£45bn across 

104 businesses. Nine companies (8.7%) 

had a market capitalisation of over £1bn 

each, and accounted for over 85% of the 

value. At the other end of the spectrum, 

42 companies (40.4%) had a market 

capitalisation of less than £10m each and 

accounted for 0.3% of the total market 

value. This puts the giants in the sector 

on average over a thousand times larger 

than the minnows. Excluded from this 

survey are other companies such as the 

state-controlled BBC and overseascontrolled 

Channel Five, together with 

a good deal of the national daily 

newspapers as they are either privately 

or overseas owned. 

Research 

To capture a representative sample of 

UK companies reporting under IFRS 

we extracted our population from the 

Hemscott database and the Financial 

Times ‘media’ companies categories. 

Several companies were excluded on the 

grounds that they more resembled 

leisure, hard technology, or printing 

companies. All qualitative and 

quantitative information was taken 

from the latest financial statements or 

annual reports publicly available at 

1 August 2009. Information with 

respect to acquisitions was taken from 

up to the last three years’ publicly 

available financial statements or annual 

reports (dependent on the level and 

significance of M&A activity). 

In January 2010 we revisited the 

accounting policies disclosed in these 

companies’ most recent annual 

reports to ensure any change of policy 

was captured. 

Definitions 

It is important to clarify some 

definitions at this stage to avoid 

ambiguity when references to Business 

combinations, Intellectual property, 

Intangible assets and Non-current 

assets are used. 

Non-current assets (or fixed assets as 

they are commonly referred to) are 

those items an enterprise either creates 

or purchases that are intended for use 

on a continuing basis in the company’s 

activities. Non-current assets normally 

comprise investments (interests 

purchased in other businesses), property 

plant & equipment and intangible assets. 

Intangible assets are assets without 

physical substance, such as intellectual 

property rights (‘IP rights’). 

Table 2. Stratification by market capitalisation at 18 January 2010 

Number Total % of 

of % of market Market 

Market cap £ companies companies cap £m cap 

> 1bn 9 7.3% 39,453 87.0% 

> 100m 13 10.6% 4,278 9.4% 

> 50m 10 8.1% 735 1.6% 

> 10m 30 24.4% 777 1.7% 

< 10m 42 34.1% 140 0.3% 

Delisted/No longer trading 19 

Total 123 84.5% 45,383 100% 


The World Intellectual Property 

Organisation defines Intellectual 

Property (‘IP’) as follows: 

IP refers to creations of the mind: 

inventions, literary and artistic works, 

and symbols, names, images, and 

designs used in commerce. 

IP is divided into two categories: 

• Industrial property, which includes 

inventions (patents), trademarks, 

industrial designs, and geographic 

indications of source; and 

• Copyright, which includes literary 

and artistic works such as novels, 

poems and plays, films, musical 

works, artistic works such as 

drawings, paintings, photographs and 

sculptures, and architectural designs 

Rights related to copyright include 

those of performing artists in their 

performances, producers of phonograms 

in their recordings, and those of 

broadcasters in their radio and 

television programmes. (source: 

http://www.wipo.int/about-ip/en/). 

IP rights can be obtained in three ways 

– through internal generation, by 

purchase from third parties, or through 

business combinations. IP rights arise 

through business combinations in many 

sectors, not just media – so what makes 

the media sector different? 

In the media sector companies are built 

on the investment in, the creation 

and exploitation of, and the buying 

and selling of IP rights. Media 

companies have to deal with accounting 

for IP rights every day – it is core to 

their business. Our chapter on IP rights 

deals with rights either internally 

generated or acquired outside of 

business combinations. 

Our chapter on business combinations 

deals with IP rights recognised at the 

point of a business combination 

(as part of the intangible asset 

measurement criteria). 

IFRS 3 ‘Business combinations’ definitions: 

Business – An integrated set of activities and assets conducted and managed for the 

purpose of providing: 

a. a return to investors; or 

b. lower costs or other economic benefits directly and proportionately to policyholders 

or participants. 

A business generally consists of inputs, processes applied to those inputs, and resulting 

outputs that are, or will be, used to generate revenues. If goodwill is present in a 

transferred set of activities and assets, the transferred set shall be presumed to be a 

business. 

Business combination – the bringing together of separate entities or businesses into 

one reporting entity. 

Goodwill – future economic benefits arising from assets that are not capable of being 

individually identified and separately recognised. 

Intangible asset – intangible asset has the meaning given to it in IAS 38 Intangible 

Assets, ie an identifiable non-monetary asset without physical substance. 



Areas of focus 

Chapter 1 

Business combinations 

When we started this survey it became 

apparent that the area of business 

combinations covered by IFRS 3 

was throwing up some interesting 

interpretations and issues in respect 

of the valuation of intangible assets. 

Consequently we have included a 

section reviewing the allocation of 

purchase consideration in business 

combinations. 

Chapter 2 

IP rights 

Our previous surveys found some 

inconsistencies between the tangible, 

intangible or inventory classifications of 

IP rights. Innovative policies for the 

recognition and amortisation of IP 

rights are being developed as companies 

continue to strive to more accurately 

report how their media-related assets 

are being created and ‘consumed’; 

the increased disclosure of companies 

reporting under IFRS provides a sound 

base on which to investigate this. 

Chapter 3 

Revenue recognition 

and segmentation 

The transition to IFRS did not 

significantly alter revenue recognition 

practices, but it still warrants an update 

in terms of what companies are 

disclosing under IFRS and further 

debate in terms of the disparities 

between what appear to be similar 

companies. There is a greater emphasis 

placed on segmental information 

under IFRS and by the Financial 

Reporting Review Panel. Consequently, 

we have also performed an analysis of 

the multitude of segmental analyses 

companies are reporting. This is 

an interesting area, given the 

disparities between what appear to be 

like-for-like businesses. 


Key findings 

Business combinations 

The area of business 

combinations needs the most 

urgent attention from 

companies and their advisers 

and, failing this, from the 

regulators. 

The market capitalisation of the quoted 

UK media sector is £40bn-£50bn 

(depending upon when you look). 

This survey looks at 132 deals in the 

sector across a 2-3 year period. 

The value of the intangible assets 

(including goodwill) of these deals was 

£11.3bn. This is a significant sum and 

underlines the importance of having 

robust measurement procedures in place 

to deal with intangible asset valuations 

when business combinations occur. 

In January 2010, the Financial 

Reporting Council published a study 

of accounting for acquisitions, where 

they looked at 20 acquisitions across 

all industry sectors that had been 

completed in 2008. Among their 

conclusions, they said: ‘Overall, 

the results were disappointing. 

In some cases it was difficult to identify 

the required accounts disclosures and 

in other cases the information 

provided in the business review and 

the audited accounts was either 

insufficient or inconsistent.’ 

The media industry is more likely than 

most to have intangible assets forming a 

significant proportion of purchase 

consideration, due to its reliance on 

people and content. This survey shows 

that in these relatively early days of 

IFRS there is a great deal of 

inconsistency across the sector in the 

approach to fair valuing intangible 

assets at the point of acquisition. 

Further guidance is being developed: 

• IFRS 3 has been revised and will come 

into force for June 2010 year ends 

• The IASB issued an exposure draft on 

fair value measurement in May 2009 

which is due to be finalised in 2010 

• The International Valuation Standards 

Council has issued an exposure draft 

addressing the determination of the 

fair value of intangible assets for IFRS 

reporting purposes which is expected 

to be finalised in 2010 

Finally, companies’ fair value 

calculations will face a more robust 

objective challenge from their 

auditors following the introduction 

of new International Auditing 

Standards in 2010. 


companies have by far the lowest 

proportion of intangible assets 

identified under the requirements of 

IFRS 3. This comes as no surprise as 

this sub-sector is not as rich in 

cash-producing content as either the 

audio & televisual or publishing & 

events sub-sectors. 

However, it is surprising that of the 

73 deals we looked at in this sub-sector, 

50 deals had little or no intangible assets 

separately identified at the point of 

acquisition. Statistics like this highlight 

the need for further guidance, and 

further action. 

8


For the sake of the future credibility 

of the sector, this matter should be 

addressed sooner rather than later. 

Is it time perhaps for finance directors 

within the sector to organise a research 

group to look at intangible valuation 

and develop a unified approach for 

media companies? The disparities across 

what seem like similar acquisitions are 

just too great. 

Rights 

The treatment of the recognition of 

intellectual property rights relating to 

content on the balance sheets in each 

sub-sector could hardly be more 

different. Structurally, advertising & 

marketing services businesses do not 

develop much in the way of content, 

but do have brand value, people value 

and process value. Under IFRS, there is 

little to capitalise on a day-to-day basis, 

and fair value is only recognised on 

balance sheet at the point of 

business combination. 

What of publishing & events? Much of 

the value of newspapers, magazines and 

online publications relates to titles 

rather than the content therein. 

Although the content of the publication 

is crucial to the ongoing success of the 

title, the value resides within the title 

rather than the content. IFRS does not 

permit capitalisation of costs relating to 

brands or titles, so once again there is 

very little value on balance sheet for 

these items except at business 

combination time. 

In contrast, it is relatively easy for audio 

& televisual producers to capitalise their 

internally generated content as 

intangible assets since the introduction 

of IFRS, although this is something that 

will not be replicated in IFRS for SMEs. 

The difference in capitalisation of 

intangibles across the sector makes it 

difficult to compare balance sheets 

across the sub-sectors and calls into 

question the value to the user of the 

balance sheet as a primary financial 

statement. Far better perhaps to focus 

on the income and cashflow statements. 

Revenue 

Segmental analysis draws the most 

comment from us. The new standard 

IFRS 8 presents a great opportunity 

for all companies to improve cross – 

referencing between the business review 

at the front of financial statements, the 

segmental analysis in the body of the 

financial statements and the accounting 

policy on revenue recognition. 

There are no significant issues in the 

sector regarding the timing of revenue 

recognition, although this may become 

an issue in the future as content is 

exploited in increasingly diverse 

methods through digital distribution. 

Only time will tell. 


Chapter 1 

Business 

combinations

Chapter 1 – Business combinations 

The background 

One of the characteristics of the 

media sector is that it comprises 

‘people’ businesses which tend 

to own a lot of IP – from films 

and programmes to magazine 

titles and brands. When one 

media business acquires 

another, a greater part of the 

price paid for the acquisition 

tends to relate to intangible 

assets and goodwill rather than 

tangible assets. 

In the UK, IFRS extended the concept 

of analysing purchase consideration 

beyond the traditional fair valuation of 

assets and liabilities covered by 

UK standards. 

IFRS 3 ‘Business combinations’ and 

IAS 38 ‘Intangible assets’ contain 

provisions mandating the fair valuation 

of a wide range of identifiable intangible 

assets in a business combination. 

As noted above, this is of particular 

significance to the media sector and 

includes the following types of assets: 

IFRS 3.BC101 

‘…the Board remained of the view that the usefulness of financial statements would be 

enhanced if intangible assets acquired in a business combination were distinguished from 

goodwill, particularly given the Board’s decision to regard goodwill as an indefinite-lived asset 

that is not amortised. The Board also remained concerned that failing the reliability of 

measurement recognition criterion might be inappropriately used by entities as a basis for not 

recognising intangible assets separately from goodwill.’ 

Marketing-related intangible assets 

• Trademarks, trade names, service 

marks, newspaper/magazine 

mastheads 

• Internet domain names 

• Non-competition agreements 

Customer-related intangible assets 

• Customer lists (n) 

• Order or production backlog 

• Customer contracts and related 

customer relationships 

• Non-contractual customer 

relationships (n) 

Artistic-related intangible assets 

• Books, magazines, newspapers and 

other literary works 

• Musical works such as compositions, 

song lyrics and advertising jingles 

• Pictures and photographs 

• Video and audiovisual material, 

including motion pictures or films, 

music videos and television 

programmes 

Contract-based intangible assets 

• Licensing, royalty and standstill 

agreements 

• Advertising, management, service or 

supply contracts 

• Operating and broadcast rights 

• Employment contracts 

Technology-based intangible assets 

• Patented technology 

• Computer software 

• Unpatented technology (n) 

• Databases (n) 

Most of these assets arise as a result of 

contractual benefits – deals that the 

companies have done to acquire or 

develop content, rights or orders that can 

be exploited in the future for the 

financial benefit of the companies. 

Valuation of these assets, while not easy, 

is achievable and is normally based upon 

the companies’ assessment of the future 

cashflows to be derived from exploiting 

the assets. 

The assets annotated (n) above are 

non-contractual. IFRS 3 and IAS 38 

require these assets to be separable and 

capable of measurement in order to be 

fair valued for acquisition accounting 

purposes. We have looked at these types 

of assets in more detail in the section 

headed ‘Interpretation stretch’ below. 


The deals 

We looked at all material 

acquisitions reported by the 

companies included in our 

survey in their financial reports 

over the last 2-3 years – 

this gave us a total of 132 

acquisitions as summarised 

in Appendix 2. 

We looked at the total consideration 

relating to intangible assets, and noted 

how this was split between Identified 

Intangible Assets (IIA) and goodwill, 

where the goodwill figure is the residue 

of consideration paid that is not 

separately identifiable, yet considered by 

management to have a value. In the UK 

quoted media sector, purchases of 

intangible assets across a two-year 

period totalled £11.3bn, around 

20%-25% of the total sector market cap 

of between £40bn-50bn. 

In table 3 below, the amounts for IIAs 

and goodwill on each deal have been 

aggregated into three bands – total 

intangible value up to £25m, £100m 

and over £100m, and split across the 

sub-sectors. 

There are three extreme acquisitions 

in this group, however, each of which 

involved a total intangible value of 3-4 

times the value of the next highest deal 

Table 3. Deal value of intangibles stratified across sub-sectors 

in the sample. These were Reed’s 

acquisition of Choicepoint Inc (£2.63bn 

of intangibles, of which £1.16bn was 

goodwill and £1.47bn was IIAs), 

Yell’s acquisition of Telefonica 

Publicidad (£2.46bn of intangibles, 

of which £1.32bn was goodwill and 

£1.14bn was IIAs) and WPP’s 

acquisition of TNS (£1.85bn of 

intangibles, of which £1.32bn was 

goodwill and £0.53bn was IIAs). 

These three ‘super deals’ accounted for 

£6.9bn of intangibles, 62% of the total. 

£m £m £m 

Total Number Total Goodwill IIA IIA% 

intangibles of deals intangibles 

AUDIO & TELEVISUAL 

£0-£25m 12 120 50 70 58% 

£25m-£100m 4 129 79 50 39% 

over £100m 1 109 104 5 5% 

17 358 233 125 35% 

PUBLISHING & EVENTS 

£0-£25m 20 153 77 76 50% 

£25m-£100m 12 534 318 216 40% 

over £100m 8 2,344 1,148 1,196 51% 

40 3,031 1,543 1,488 49% 

ADVERTISING & MARKETING SERVICES 

£0-£25m 65 452 396 56 12% 

£25m-£100m 5 186 149 37 20% 

over £100m 2 304 224 80 26% 

72 942 769 173 18% 

TOTAL 129 4,331 2,545 1,786 41% 

EXCLUDED DEALS 

over £100m 3 6,945 3,611 3,335 48% 

132 11,276 6,156 5,121 45% 



The advertising & marketing services sub-sector was the busiest, with 72 deals, 

but publishing & events carried the highest total intangibles value, at £3bn. 

We then summarised the IIA as a percentage of total spend on intangibles by 

sub-sector and deal size. 

Table 4. % of total intangible spend relating to identified intangibles 

Range 

£m 

Deals Audio & 

televisual 

In the publishing & events sub-sector, 

about half of the intangible spend is 

separately identified and disclosed. 

This is reasonably consistent across the 

deal size range, with the mid-size 

acquisitions a little lower at 40%. 

In the audio & televisual sub-sector the 

story is similar. On average almost half 

of intangible consideration is identified 

for all deals up to £100m. There is one 

deal in the £100m+ range, BSkyB’s 

acquisition of Amstrad, where identified 

intangibles were only 5% of the total. 

Publishing 

& events 

Advertising 

& marketing 

services 

0-25 97 58% 50% 12% 

25-100 21 39% 40% 20% 

100+ 11 5% 51% 26% 

129 35% 49% 18% 

This deal was more about hardware 

(set top boxes) than content, and is 

not typical. 

The advertising & marketing services 

sub-sector has an identified intangibles 

rate of only 18%, between one-third and 

one-half of the other two sub-sectors. 

We believe that this is due to a number 

of factors, principally ‘Content v 

Contacts’ and ‘Interpretation stretch’. 

Of course the whole 

media industry relies on 

its people to a great 

extent, but advertising 

& marketing services 

companies do not have 

the long-tail benefit of 

exploitable Content 

sitting on the shelf. 

Content v Contacts 

IP in media is more prevalent in the 

audio & televisual and publishing & 

events sub-sectors than in advertising 

& marketing services. This is due to the 

incidence of the various forms of 

Content such as programmes, films and 

books. The value in the creation and 

exploitation of Content underpins the 

value of entities in these sub-sectors. 

In contrast, the advertising & marketing 

services sub-sector has no Content to 

exploit. Rather, its IP lies within its 

brands and operational strengths. It relies 

on the quality of its people, particularly 

at the account management and creative 

levels, and the strength of their client 

relationships – their contacts. Of course 

the whole media industry relies on its 

people to a great extent, but advertising 

& marketing services companies do not 

have the long-tail benefit of exploitable 

Content sitting on the shelf. 

Consequently, we would expect to see a 

high level of identifiable intangibles in 

respect of Content in the televisual, 

audio and publishing businesses, 

compared with the advertising & 

marketing services sector. 

In the absence of Content, what other 

identifiable intangibles do advertising 

& marketing services businesses have 

that differentiates one from another in 

terms of value? We explore this point in 

more detail in the sample analysed later 

in the chapter. 


Interpretation stretch 

In the early days of the 

implementation of any new 

accounting standard that differs 

significantly from its 

predecessor, there is a period 

of innovative interpretation 

when companies deal with the 

adoption of the standard for 

the first time. 

The approach tends to be (a) understand 

the thrust of the new standard and 

evaluate its potential range of effects on 

the results of the business; (b) look to see 

how others have interpreted the 

standard; and (c) interpret the standard 

in the most beneficial way for the 

company in the light of (a) and (b). 

Whether this will capture the spirit of 

the particular standard, and lead to 

companies taking a common approach as 

to its interpretation depends upon how 

well the standard has been written. 

When loosely worded, standards can be 

capable of a wide degree of interpretation 

across different companies. 

As a rule of thumb, the degree of 

Interpretation stretch will correspond 

to the degree of ambiguity within the 

wording of the standard. 

Within IFRS 3 there is a wide area of 

interpretation as to what can be 

considered a separately identifiable 

intangible asset. This is particularly true 

in the relatively newly identified area of 

non-contractual relationships. 

IFRIC (the International Financial 

Reporting Interpretations Committee) 

have been debating the topic, and in 

particular the subtleties of the difference 

between contractual and non-contractual 

customer relationships. The topic has 

been batted about in the UK and across 

the Atlantic with our American cousins, 

all in the cause of international 

accounting convergence. As at August 

2009, the problem of interpretation of 

recognition, first looked at as a 

commercial issue seeking a pragmatic 

solution, appears to have been shunted 

into a sub-committee siding. 

Notes from IFRIC staff meetings 

include the following helpful comments: 

‘Valuation practitioners and companies have often 

asserted that customer relationships are difficult 

to measure reliably separately from goodwill and 

hence, they may not have been separated under 

the previous version of IFRS 3, which included an 

exception for reliable measurement. 

The staff discussed with several valuation 

practitioners in the US and UK their experiences 

with non-contractual customer relationships. 

Though informal, some of the experiences 

shared with the staff include the following: 

a. intangibles of significant values typically 

include trade names and contractual customer 

relationships (income valuation approach); 

b. customer lists are of little value (cost 

replacement valuation approach), and 

non-contractual customer relationships 

(residual income valuation approach) are 

uncommon and not significantly valued; 

c. a customer loyalty program was cited as an 

example of non-contractual customer 

relationship but mixed views on the value; 

d. ‘depositor’ relationships and related deposit 

liabilities are not sold as a single asset group 

outside of business combinations; 

e. ‘pay-as-you-go’ mobile customers are 

non-contractual but is that a relationship if 

mobile providers typically do not know the 

identity or contact details of the customers; 

f. when non-contractual customer relationships 

are identified, often the entity has insufficient 

information for valuation to recognise them 

separately from goodwill. 

IFRS 3 Business Combinations (as revised in 

2008) requires an acquirer to recognise the 

identifiable intangible assets of the acquiree 

separately from goodwill. An intangible asset is 

identifiable if it meets either the contractual-legal 

criterion or the separable criterion in IAS 38 

Intangible Assets. 

Customer-related intangible assets may be either 

contractual or non-contractual. Contractual 

customer relationships are always recognised 

separately from goodwill as they meet the 

contractual-legal criterion. However, noncontractual 

customer relationships are 

recognised separately from goodwill only if they 

meet the separable criterion. Consequently, 

determining whether a relationship is contractual 

is critical to identifying and measuring both 

separately recognised customer relationship 

intangible assets and goodwill, and different 

conclusions could result in substantially different 

accounting outcomes. 

The IFRIC concluded that how the relationship 

is established helps to identify whether a 

customer relationship exists but should not be 

the primary basis for determining whether the 

acquirer recognises an intangible asset. 

The IFRIC noted that the criteria in paragraph 

IE 28 might be more relevant. The existence of 

contractual relationships and information about a 

customer’s prior purchases would be important 

inputs in valuing a customer relationship 

intangible asset but should not determine 

whether it is recognised. 

In the light of the explicit guidance in IFRS 3, the 

IFRIC decided that developing an Interpretation 

reflecting its conclusion is not possible. Noting 

widespread confusion in practice on this issue, 

the IFRIC decided that it could be best resolved 

by referring it to the IASB and the FASB with a 

recommendation to review and amend IFRS 3 by: 



• removing the distinction between ‘contractual’ 

and ‘non-contractual’ customer-related 

intangible assets recognised in a business 

combination; and 

• reviewing the indicators that identify the 

existence of a customer relationship in 

paragraph IE 28 of IFRS 3 and including them 

in the standard.’ 

The Interpretation stretch resulting from 

the lack of clarity ranges from some 

advertising & marketing services entities 

carrying out a comprehensive review in 

the spirit of the standard and identifying 

a number of intangible assets other than 

goodwill, to others that have come to the 

conclusion that nothing can be 

separately identified from goodwill. 

One fear that companies might have 

is that identifying an intangible asset 

relating to, say, contractual customer 

relationships might lead to that asset 

being amortised over a relatively 

short period compared with leaving the 

same amount in goodwill and carrying 

it forward indefinitely (subject 

to impairment). 

Thus, separate identification of an IIA 

would lead to a weaker annual result due 

to the effect of the amortisation change. 

Part of the argument supporting the 

assertion of indefinite-life goodwill as 

opposed to systematic amortisation 

concerns the replacement effect of 

subsequent spend. When the IASB 

revisited IAS 38, they asked ‘why 

amortise goodwill when you will 

regularly incur P&L spend to maintain/ 

replace it post acquisition?’. After all, 

this would lead to a double whammy of 

the income statement charge of goodwill 

amortisation together with its cost of 

maintenance. They concluded, that 

goodwill should be deemed to have an 

indefinite-life (ie no foreseeable limit to 

the period the CGU generates cash 

inflows) and should be checked for 

impairment each year. 

Should this logic not also be applied to 

all other intangible assets? Is it 

inconsistent to treat the intangible 

asset ‘goodwill’ differently to other 

intangible assets such as customer 

relationships? The annual spend on 

maintaining relationships is written 

off to P&L annually; why not then 

simply subject the originally purchased 

asset to an annual impairment test, 

as with goodwill? 

Alternatively, should the logic of 

allowing the existence of indefinite-life 

assets, such as goodwill, be critically 

examined once more? On balance we 

would favour this latter course. 

Under IAS 38.88-96, where there is 

‘no foreseeable limit to the period over which 

the asset is expected to generate net cash 

inflows for the entity’ then it can be treated 

as an indefinite-life intangible, which 

similarly to goodwill is not amortised 

and is annually tested for impairment. 

The only limiting factor here is that the 

useful life of intangibles that arise from 

contractual rights should be restricted to 

the term of the contractual life 

(IAS 38.94). However, non-contractual 

relationships could quite possibly have 

longer lives than contractual ones, on the 

basis that contracts will normally be 

finite. Non-contractual relationships can 

exist for decades. 

Alternatively, should the logic of allowing the existence 

of indefinite-life assets, such as goodwill, be critically 

examined once more? 


Residual goodwill and ‘synergies’ 

The basis of conclusions section 

in IFRS 3 gives some view on 

what goodwill actually 

represents and refers several 

times to ‘synergies’. 

‘Synergies’ is a term widely used in 

practice to describe expected benefits 

from combining an acquired group of 

assets or a business with an existing 

business. These are deemed to include 

(for example): 

• additional revenues from marketing 

the acquirer’s products and services 

to the acquiree’s customers 

(cross-selling) 

• cost savings and economies of scale 

from integration of operating facilities 

• defensive synergies, such as preventing 

a competitor from gaining a dominant 

market share. 

It seems like it should be easy… acquire 

a company, combine its revenues with 

ours and not only rationalise overhead, 

but also realise additional potential 

synergies between people, processes, 

and systems, and the sum will be greater 

than the two parts. Before the 

acquisition, buyers carry out detailed 

due diligence, making estimates of those 

synergies which influence the price the 

buyer is ultimately willing to pay. 

The reality, however, is that the savings 

tend not to be as great as expected. 

There is still a case to be answered as to 

whether: 

i. synergies materialise in practice and 

are therefore justifiable as a basis on 

which to support goodwill? 

ii. synergy assumptions are sufficiently 

defined and properly tested during 

goodwill impairment appraisals 

‘What is goodwill? IFRS 3.BC130/131/135 

…the Board observed that when goodwill is measured as a residual, it could comprise the 

following components: 

a. the fair value of the ‘going concern’ element of the acquiree… that value stems from 

the synergies of the net assets of the acquiree, as well as from other benefits such as 

factors related to market imperfections, including the ability to earn monopoly profits 

and barriers to market entry 

b. the fair value of the expected synergies and other benefits from combining the 

acquiree’s net assets with those of the acquirer. Those synergies and other benefits 

are unique to each business combination, and different combinations produce different 

synergies and, hence, different values 

c. overpayments by the acquirer 

d. errors in measuring and recognising the fair value of either the cost of the business 

combination or the acquiree’s identifiable assets, liabilities or contingent liabilities, 

or a requirement in an accounting standard to measure those identifiable items at an 

amount that is not fair value. 

The Board observed that the third and fourth components conceptually are not part of 

goodwill and not assets, whereas the first and second components conceptually are part 

of goodwill. The Board described those first and second components as ‘core goodwill’, 

and focused its analysis first on whether core goodwill should be recognised as an asset. 

The Board concluded that goodwill acquired in a business combination and measured 

as a residual is likely to consist primarily of core goodwill at the acquisition date, 

and that recognising it as an asset is more representationally faithful than recognising 

it as an expense.’ 

(required at each reporting date)? 

and consequently; 

iii. it is right to carry an asset on the 

balance sheet (goodwill) at all on the 

basis that it represents ‘synergies’? 

IAS 38 dictates that intangible asset 

valuations should already be taking 

account of synergies to the extent that 

they increase the amount that a 

knowledgeable, willing buyer would pay 

for an asset if acquired separately. 

This applies even if the actual acquirer 

does not expect to receive those benefits. 

So the availability of synergies 

(cross-sell potential for example) 

might affect the fair value of an asset. 

In summary, if those synergies are 

(i) intrinsic to the asset and (ii) available 

to more than one buyer, they should 

form part of the intangible asset 

valuation, not goodwill. 

In contrast, synergies or other factors 

that are unique to the specific acquirer 

or transaction should not be taken in to 

account during intangible asset 

valuations and should form goodwill. 

IFRS 3.66 does not help, with only light 

disclosure requirements in this area: 

‘a description of each intangible that was 

not recognised separately from goodwill 

and an explanation of why the fair value 

could not be measured reliably’. 

In this respect, we believe companies 



should be disclosing exactly what 

‘specific, unique synergies’ goodwill 

represents, and making it clear to the 

reader the sources of value underlying 

goodwill. This should be happening 

behind the scenes in any case – the value 

of the various identified components of 

goodwill should be determined in terms 

of future cashflows, discounted at an 

appropriate weighted cost of capital and 

then form the basis of allocation of 

goodwill to CGUs. 

At business combination time, it seems 

that the standards make it too easy for 

companies to assert that the IAS 38 

criteria for intangible asset recognition is 

failed (normally on the separability 

criterion), recognise the entire difference 

between purchase consideration and the 

fair value of net assets as goodwill 

(carrying an indefinite-life), and declare 

that goodwill simply represents 

‘synergies’ – is that really the best we can 

do? Are shareholders really being given 

the full story? The process of evaluating 

goodwill compels management to 

identify and quantify the sources of 

cashflows that go on to support the 

value of goodwill. If this is a struggle and 

the assumptions about cashflows are 

unrealistic or indefinable, not only does 

it suggest an overpayment but it might 

also erode value as a lack of 

measurability leads to a lack of attention 

by management in the areas previously 

identified as representing ‘synergies’. 

Given the above requirements of IAS 38 

and IFRS 3, in each case where 

‘synergies’ is disclosed as the description 

of what goodwill represents, it must 

mean that they are completely unique to 

that specific acquirer and/or they are not 

separately identifiable. Given the lack of 

detail in IAS 38 with respect to 

disclosing the nature of what goodwill 

represents, we did not expect to see 

meaningful disclosure in this area. 

We’ll let the analysis do the talking… 

The process of evaluating goodwill compels 

management to identify and quantify the sources of 

cashflows that go on to support the value of goodwill. 


Analysis of business combinations 


companies analysis 

There was significant acquisition 

activity in this sector during 

2007 and 2008, and on the whole 

the major audio & televisual 

companies made a sound 

attempt to value the intangibles 

acquired with these businesses. 

Shed Media acquired Outright, 

Twenty Twenty and Wall to Wall in 2007 

– the difference between the combined 

purchase price and the combined 

tangible net assets was £47.3m. Shed 

allocated £13.7m (29%) of this to 

intangible assets – £5.1m of trademarks 

to be amortised over five years, £6.1m of 

customer relationships amortised over 

ten years and £1.3m and £1.2m 

respectively for backlog and 

recommissions amortised over two 

years. This left £33.6m of goodwill 

recognised across the three acquisitions, 

which was described as being 

attributable to operational synergies and 

future earnings potential. 

Table 5. The super-indies acquisitions 

RDF Media acquired Presentable, The 

Foundation and Comedy Unit in 2007, 

allocating £13.6m (64.2%) of the £21.2m 

difference between the combined 

purchase price and the combined 

tangible net assets to intangible fixed 

assets. They too are amortising customer 

relationships over ten years but are also 

amortising trade names over ten years. 

The purchase price (£0.7m) of their 

acquisition in 2008 – History Rights 

Limited – was allocated 100% to IP 

rights. RDF also note goodwill being 

attributable to operational synergies. 

Also in 2007, DCD Media acquired 

September Films, Prospect Pictures and 

West Park Pictures. They valued the 

combined trademarks at £9.8m (43.6%) 

with the balance (£12.6m) recognised as 

goodwill. DCD did not appear to 

capitalise customer relationships, IP 

rights, or contracts. DCD instead noted 

that goodwill represented the future 

benefit the group expects from the 

expertise of the company and the 

industry contracts that will provide 

synergies with other group companies. 

Shed Media DCD Media RDF Media 

£m £m £m 

Backlog/Order book 1.3 9% – 0% 1.7 13% 

Recommissions/IP rights 1.2 9% – 0% 1.0 7% 

Customer relationships 6.1 45% – 0% 7.7 57% 

Trademarks 5.1 37% 9.8 100% 2.2 16% 

Other – 0% – 0% 1.0 7% 

It is amortising the capitalised 

trademarks over ten years also. 

The other big acquisition in the 

television production world in 2007 was 

that of 12 Yard by ITV. Perhaps because 

ITV is a broadcaster it did not recognise 

any value with respect to 12 Yard’s 

relationships with other broadcasters – 

we might expect these to be of 

significantly less value to the business 

subsequent to the acquisition. An order 

backlog of £4m was recognised with the 

remaining £31m recognised as goodwill 

attributed to, rather generically 

(a recurring theme here), the synergies 

the acquisition would bring to the group. 

Other activity in this sector included 

UTV Media’s acquisition of Tibus, the 

web and content management business, 

and of FM104, the Dublin based radio 

station. UTV did not separately value 

any intangible assets when acquiring 

Tibus, but disclosed that within the 

£3.8m of goodwill recognised: 

‘there are certain intangible assets that cannot 

be individually separated and reliably measured 

from the acquiree due to their nature. 

These primarily relate to the expected value of 

synergies arising from the integration of Tibus 

with the Group’s existing new media business 

and the wider strategic benefits of the acquisition 

to the Group.’ 

13.7 9.8 13.6 

Goodwill 33.6 12.7 7.6 

Total intangibles 

acquired 47.3 22.5 21.2 

Identified intangible 

assets % 28.9% 43.6% 64.2% 



When acquiring FM104, UTV separately 

valued a radio licence at £37.2m. It also 

stated that included in the £12.9m of 

goodwill recognised were certain 

intangible assets that could not be 

individually separated and reliably 

measured. Disclosure noted that: 

‘these primarily relate to the expected value of 

synergies arising from the integration of FM104 

with the Group’s existing radio business in Ireland 

enabling the Group to offer an enhanced urban 

access package to advertisers.’ 

We would have expected separately 

identifiable brand names and trade 

marks to have had some value. 

None of these companies capitalised 

non-compete agreements that may have 

been acquired with the businesses. 

Boomerang and Galleon Holdings 

both capitalised non-compete 

agreements in 2008 (the former 

amortising over two years). 

Furthermore, Boomerang split the 

customer relationships they acquired 

into ‘contractual’ and ‘non-contractual’ 

– adopting an indefinite useful life policy 

on their non-contractual customer 

relationships identifying them as: 

‘key to the long term of the business.’ 

This is an interesting point given that the 

commissioning process and the way in 

which televisual content is delivered 

(through traditional broadcasters) is 

likely to change substantially over the 

next ten years. Given these uncertainties, 

we question whether relationships with 

existing broadcasters can indeed have an 

indefinite-life. 

Other points of note include Eros 

International’s recognition of the 

‘Eros’ trade name ($14m) when the 

group came together (via business 

combination) in 2006 – they considered 

it to have an indefinite economic life 

because of the: 

‘institutional nature of the corporate brand 

name, its proven ability to maintain market 

leadership and the Group’s commitment to 

develop and enhance its value.’ 

BSkyB’s purchase of Amstrad in 2008 

for £127m created £5m of intangibles 

and £104m of goodwill, but there was no 

comment in the accounts as to what the 

intangibles or goodwill related to at all. 

There are several aspects of the 

acquisition by HandMade of HandMade 

Holdings Limited in June 2006 that are 

of interest, as this is a transaction that 

was originally dealt with under UK 

GAAP in the 2006 financial statements 

and then restated in 2007 in accordance 

with IFRS. The disclosure made 

surrounding the acquisition and the 

change in the 2007 financial statements 

is comprehensive. 

The opening part of the Acquisitions 

note in 2007 reads: 

‘There were no acquisitions during the year. 

Below are details of the two acquisitions which 

took place during 2006. On 9 June 2006 

Equator Group plc acquired 100% of the voting 

equity shares of HandMade Holdings Limited. 

Following the acquisition Equator Group plc 

changed its name to HandMade plc. Equator paid 

consideration fair valued at £24,759,000 via 

cash, the issue of new shares and a convertible 

loan note (see below). 

The fair value of the assets and liabilities acquired 

from HandMade Holdings Limited, and 

adjustments from book value which were 

necessary when accounting under IFRS are set 

out in the following table: 

Table 6. HandMade – extract from 2007 financial statements – fair value of assets 

and liabilities acquired 

Fair value Book value Adjustment Fair value 

£’000 £’000 £’000 

Intangible assets – (see note 10) 7,727 24,209 31,936 

Debtors 773 – 773 

Cash 1 – 1 

Loan (6,483) – (6,483) 

Creditors (1,468) – (1,468) 

Deferred tax liability – (see note 18) – (9,581) (9,581) 

Net assets 550 14,628 15,178 

Fair value of consideration paid £’000 

Shares issued on acquisition 16,000 

Convertible loan note 1,790 

Deferred consideration 6,405 

Costs of acquisition 564 

Total consideration 24,759 

The above fair values generated goodwill on acquisition of £9,581,000. 


This shows that a deferred tax liability 

of almost £10m was recognised on this 

acquisition. The following extract from 

the Business Review of the Directors’ 

Report helps explain this: 

‘…Deferred tax has been provided using the 

balance sheet liability method, recognising all 

temporary differences. The impact of this has 

been to recognise a deferred tax liability in 

respect of intangible assets. The liability is 

released to the income statement over the period 

over which the assets are amortised. Where the 

creation of this liability relates to an intangible 

asset acquired as part of a business combination 

(see below), an equal and opposite adjustment is 

posted to increase goodwill arising on the 

business in question. This adjustment to goodwill 

is not amortised, but is subject to an annual 

impairment review… Goodwill of £11.75m (2006 

– £12.16m) is held as an asset in the Balance 

Sheet at the year end. £10.32m of this balance 

arose to reflect the deferred tax liability that was 

recognised in respect of the intangible assets 

acquired with HandMade and Sequence in 2006, 

as explained in the opening section of this review 

which discusses the impact of IFRS on the 

financial statements… Under IFRS, goodwill is 

not amortised, but is subject to an annual 

impairment test. Following analysis of the 

goodwill balance, no impairment was required.’ 

The deferred tax liability arose through 

the use of the balance sheet liability 

method on the business combination, 

and will unwind over the asset 

amortisation period. When the liability is 

set up, an ‘equal and opposite adjustment 

was posted to goodwill’, that is to say, 

an asset of £10.3m was created to offset 

the creation of the tax liability. 

Note 9 in respect of goodwill says: 

‘…As discussed previously in the financial review 

in the Directors’ report, £10,320,000 of the 

above goodwill is created when a deferred tax 

liability is recognised in relation to the intangible 

assets acquired with HandMade Holdings Limited 

and Sequence Film Limited in 2006.’ 

In other words, it had to create £10.3m 

of goodwill because it had to create 

£10.3m of deferred tax liability, as a 

result of increasing the fair value of 

intangibles by £34.4m (note 10, 

intangible assets) on acquisition. But 

having created the goodwill out of 

nothing, it then has to look at its value. 

It justifies this in note 9 as follows: 

‘As a result, £9,327,000 of the above goodwill is 

‘sheltered’ by the deferred tax liability disclosed in 

note 18. Impairment reviews of the intangible 

assets in respect of which the deferred tax 

liability is recognised (see note 10) provide 

comfort over the £993,000 unsheltered goodwill 

arising due to the deferred tax liability…’ 

By ‘sheltered’ it means that it is offset to 

the tune of £9.3m by the liability that it 

was set up to cover, leaving the goodwill 

asset in excess of the deferred tax liability 

by some £993k. How did this come 

about? The deferred tax note reads: 

‘The following are the deferred tax liabilities 

recognised by the Group and movements thereon 

during the current and prior periods.’ 

Fair value gains £’000 

At 1 January 2006 1,170 

Arising on business combinations 

(see note 13) 10,320 

Credit to income (note 7) (425) 

Balance at 31 December 2006 11,065 

Credit to income (note 7) (1,738) 

Balance at 31 December 2007 9,327 

In plain English, the tax liability that was 

set up as a result of the combination is 

being unwound by being credited 

through the income statement, but the 

asset that was set up as an ‘equal and 

opposite adjustment’ is not being written 

off accordingly. 

Instead, the growing difference between 

asset and liability is being aggregated 

with the value of the intangibles that led 

to the creation of the tax liability in the 

first place. It is then pronounced not in 

need of impairment! 

The intangibles largely come about as 

a result of the fair value exercise carried 

out on the HandMade combination. 

The total value arising from this was 

£31.9m, of which £11.4m related to the 

‘Eloise’ franchise and the balance to film 

library. The carrying value of the film 

library was £23.7m, prior to an 

amortisation charge of £1.4m, leaving 

a carrying value of £22.3m at 

31 December 2007. 

The basis of amortisation of film library 

intangibles is straight line, 20 years 

(accounting policies) so the charge looks 

reasonable. The impairment review in 

respect of the film library was described 

as follows (note 10): 



Film library 

‘The relevant recoverable amount for this asset 

was determined from value in use calculations 

based on a six year forecast to 31 December 

2013 prepared by the management of 

HandMade plc. The forecast considered the 

income that management expect to be generated 

from the Group’s film library (comprising over 

100 feature films) and also from four feature 

films which will be produced in the future and 

which exploit the re-make and sequel rights 

inherent in the value of the library. 

The key assumptions for the value in use 

calculation are those regarding the discount rate, 

the value of un-contracted income streams and 

the timing of the receipt of all income streams. 

Management estimates discount rates using 

post-tax rates that reflect current market 

assessments of the time value of money and the 

risks specific to each type of income stream. 

The rates used to discount the forecast were in 

the range 10% to 50%. 

The assumptions relating to income streams 

and the timing thereof are based on historical 

data (in the case of the film library only) and 

on management’s estimates and knowledge 

of the film industry gained from many years 

of experience.’ 

Bear in mind that the library is an 

established library of existing films 

(with their re-make rights). 

In considering the future forecast for 

the six years to 31 December 2013, 

management no doubt looked at the past 

performance of the library for each of 

the two years ended 31 December 2006 

and 2007. Quoting from the business 

segmental information: 

For the year ended 31 December 2007 

information about these business segments 

is as follows: 

Library 2007 2006 

£’000 £’000 

Revenue 

– External 827 292 

– Internal (230) 

Total 597 292 

Loss before tax (868) (862) 

Income tax 843 367 

Loss for the year (25) (495) 

NB – after charging 

amortisation 1,329 900 

It is always difficult to forecast the 

revenues from the sales of new films. 

Large established libraries, however, 

tend to have historic sales patterns 

across many titles, making forecasting 

somewhat more predictable. Unless 

previous exploitation had been 

particularly weak, or a large number of 

licences were about to expire, readers of 

the financial statements might have 

thought that it would be difficult to 

drive a value of £22.3m out of the library 

given the historic sales performance 

disclosed above. 

This example illustrates how the 

increased disclosure requirements of 

IFRS can highlight areas worthy of 

further discussion among stakeholders. 

Mama Group point out that fair values 

of intangibles are provisional and explain 

that the valuations adopted at the point 

of acquisition will be reviewed and 

revised in the 12 months following 

acquisition. In respect of their 

acquisition of the Angel Music Group, 

they disclosed that: 

‘The Group acquired various rights and 

trademarks relating to certain brands held by 

companies within the Angel Music Group of 

companies. These brands included Global 

Gathering, Polysexual and Godskitchen. 

These brands are used by this group in festivals 

and venues, as well as within worldwide 

sponsorship agreements. 

As part of the fair value adjustment to the net 

book valued acquired, the Group undertook an 

exercise to value these brand names based on 

projections produced by the Directors of Angel 

Music Group. Based on these forecasts the 

Directors consider that a value of £2.16m to be 

attributable to the future marketability of these 

brands. The directors consider that these brands 

have a useful economic life of 20 years. 

A fair value has also been attributed to a 

customer relationship held by the Angel Group 

of companies which has been calculated 

at £350,000.’ 

They are amortising customer 

relationships over two years. 


Advertising & marketing services companies analysis 

The advertising & marketing services sector also had considerable M&A activity through 2007 and 

2008. The treatment of intangible assets in this sector was markedly different to that of the TV, 

film and broadcasting sector. A large number of acquisitions had a low value attributed to specific 

intangibles and a much higher value remained as residual goodwill. A number of companies made a 

real attempt to recognise intangibles acquired. 

Table 7. Companies recognising over 5% of total intangibles as separately identified intangible assets 

£m £m £m 

Company Acquisition Total intangibles Goodwill IIA IIA% 

Aegis [14 acquisitions totalled] 151.3 92.2 59.1 39.1% 

Centaur Period Living 1.5 0.1 1.4 93.3% 

Centaur Recruiter 4.0 0.6 3.4 85.0% 

Centaur Pro Talk 5.9 3.2 2.7 45.8% 

Digital Marketing Group Hyperlaunch 3.2 2.0 1.2 37.5% 

Digital Marketing Group Graphico 9.4 6.0 3.4 36.2% 

Digital Marketing Group Scope Creative (Dig for Fire) 8.2 5.6 2.6 31.7% 

Digital Marketing Group Alphanumeric (Jaywing) 14.7 10.3 4.4 29.9% 

Digital Marketing Group HSM Telemarketing 8.0 5.9 2.1 26.3% 

Digital Marketing Group Cheeze 10.3 8.9 1.4 13.6% 

Huntsworth Dorland Corporation 13.0 9.0 4.0 30.8% 

Huntsworth Axis Healthcare 20.5 16.0 4.5 22.0% 

Interactive Prospect Targeting Holdings NP6 6.3 5.0 1.3 20.6% 

Interactive Prospect Targeting Holdings Direct Excellence 0.6 0.5 0.1 16.7% 

Interactive Prospect Targeting Holdings Directinet/J2P2N 21.9 19.6 2.3 10.5% 

M&C Saatchi Clear Ideas/Walker Media 45.7 39.9 5.8 12.7% 

Thomson Reuters [4 aquisitions totalled] 56.0 26.0 30.0 53.6% 

Toluna Speedfacts 4.7 3.2 1.5 31.9% 

WPP Taylor Nelson Sofres 1,858.4 1,132.7 725.7 39.0% 

WPP Others 152.8 132.4 20.4 13.4% 

YouGov Polimetrix 12.6 7.0 5.6 44.4% 

YouGov Psychonomics 20.8 13.3 7.5 36.1% 

YouGov Zapera 12.0 8.5 3.5 29.2% 

2,442 1,548 894 36.6% 



Intangible allocations vary widely from 

93.3% for Centaur’s acquisition of 

Period Living, to 53.6% with respect to 

the combined Thomson Reuters 

acquisitions, to an average of 12.8% for 

the combined Interactive Prospect 

Targeting Holdings acquisitions. 

Centaur purchased Period Living, 

Recruiter and ProTalk in 2006, 

attributing a high percent to customer 

relationships and brand names. It chose 

to amortise brand names over 20 years 

and customer relationships over ten 

years. Aegis also valued customer 

relationships in its 2008 acquisitions with 

an amortisation policy of five years. 

Digital Marketing Group appeared to 

allocate a consistent amount to 

intangibles for most of its acquisitions 

and adopts a policy of amortising 

customer relationships over 8-12 years. 

M&C Saatchi amortise its capitalised 

customer relationships over 1-5 years 

and brand names over anything from 

seven years to an indefinite period. 

Interactive Prospective Targeting 

made three acquisitions – none of which 

had particularly highly valued customer 

relationships, contracts or brand names – 

recognising IIAs of 13% combined. 

Its amortisation policies included 

customer relationships and trade names 

over 7-16 years, forward orders between 

1-4 years, software over 15 years, website 

and data costs over three years and 

licences over 1-5 years. It noted that the 

goodwill recognised on these acquisitions 

related to: 

‘the expansion of current products to the online 

market and anticipated future synergies.’ 

Huntsworth valued brands and customer 

relationships on both its major 

acquisitions (Dorland Corporation 

and Axis Healthcare), amortising these 

over 3-20 years. 

Of the research-based companies, 

Toluna separately valued its customer 

lists (amortised over four years) as well 

as panel costs (amortised over 1-2 years). 

It also noted that: 

‘a significant amount of the value (of the 

acquisition) is attributable to its workforce and 

sales knowhow.’ 

and furthermore, that it was: 

‘expecting significant synergies from 

integration into the rest of the group.’ 

In comparison, YouGov amortise 

customer contracts and customer lists 

over 10-11 years and consumer panel 

costs over five years. They too 

attributed goodwill to: 

‘anticipated synergies and the value of the 

workforce acquired.’ 

WPP’s acquisition of research 

consultants Taylor Nelson Sofres is 

clearly of interest given its size (£1bn 

compared to WPP’s market cap of 

£5-6bn), but disclosure was relatively 

light with respect to intangible 

allocation. Intangible assets recognised 

as fair value adjustments included 

customer relationships, proprietary 

tools and brands. It states that brands 

are amortised over anything from 

10-20 years or are deemed to have an 

indefinite-life and that customer 

related intangibles are amortised over 

3-10 years. 


Many companies struggled to find few, if any, IIAs 

Table 8. Companies recognising under 5% of total intangibles as separately identified intangible assets 

£m £m £m 


Cello Market research international 2.2 2.1 0.1 4.5% 

Cello Hill Murray group 3.8 3.7 0.1 2.6% 

Cello 2CV 7.9 7.7 0.2 2.5% 

Cello MSI 7.5 7.4 0.1 1.3% 

Cello SMT consulting 8.3 8.3 0 0.0% 

Cello Magnetic advertising 2.4 2.4 0 0.0% 

Cello Farm communications 1.2 1.2 0 0.0% 

Cello Rosenblatt/Digital online people 1.0 1.0 0 0.0% 

Cello Bankbrae 0.9 0.9 0 0.0% 

Cello OMP services 0.3 0.3 0 0.0% 

Chime Fast Track Sales 27.9 27.0 0.9 3.2% 

Chime VCCP and Stuart Francis Whitson 22.8 22.8 0 0.0% 

Chime The Corporate Citizenship company 3.0 3.0 0 0.0% 

Chime De Facto Communications 1.8 1.8 0 0.0% 

Chime Stuart Higgins communications 1.5 1.5 0 0.0% 

Chime Facts International 0.6 0.6 0 0.0% 

Creston plc ICM Research 18.5 17.6 0.9 4.9% 

Creston plc Red Door 7.7 7.5 0.2 2.6% 

Creston plc PAN Advertising 12.5 12.2 0.3 2.4% 

Creston plc Tullo Marshall Warren 27.4 26.9 0.5 1.8% 

Ekay WFCA Integrated 8.5 8.5 0 0.0% 

Hasgrove Pavillion Communications 7.3 7.3 0 0.0% 

Hasgrove Odyssey Interactive 3.3 3.3 0 0.0% 

Hasgrove Politics International 2.5 2.5 0 0.0% 

Hasgrove Amaze 2.4 2.4 0 0.0% 

Hasgrove Cabinet Stewart 1.4 1.4 0 0.0% 

Hasgrove Hailstone Creative 1.0 1.0 0 0.0% 

Huntsworth Grayling International 1.3 1.3 0 0.0% 

International Marketing & Sales Group V+O Communication 14.8 14.8 0 0.0% 

International Marketing & Sales Group Shared Value 10.6 10.6 0 0.0% 

International Marketing & Sales Group Zap 8.1 8.1 0 0.0% 

International Marketing & Sales Group Pragma 6.4 6.4 0 0.0% 

International Marketing & Sales Group Friends 3.5 3.5 0 0.0% 

International Marketing & Sales Group BIP 3.0 3.0 0 0.0% 

International Marketing & Sales Group Tarantula 1.0 1.0 0 0.0% 

International Marketing & Sales Group MAPP & Promer 1.0 1.0 0 0.0% 

MKM Group Leisure World/Leapfrog 5.1 5.0 0.1 2.0% 

Optimisa eq group plc 12.7 12.1 0.6 4.7% 

Research Now Samplenet e-Research Solutions Inc 16.6 16.2 0.4 2.4% 

The Mission Marketing Group Bray Leino 28.8 28.8 0 0.0% 

The Mission Marketing Group RLA 15.0 15.0 0 0.0% 

The Mission Marketing Group April-Six 12.1 12.1 0 0.0% 

The Mission Marketing Group Story UK 10.0 10.0 0 0.0% 

The Mission Marketing Group Bastin Day Westley 9.0 9.0 0 0.0% 

The Mission Marketing Group Big/Fuse 8.4 8.4 0 0.0% 

The Mission Marketing Group Broadskill 1.7 1.7 0 0.0% 

The Mission Marketing Group TMMHL 1.1 1.1 0 0.0% 

The Mission Marketing Group PCM 0.5 0.5 0 0.0% 

The Mission Marketing Group Rhythmm Communications Group 0.4 0.4 0 0.0% 

Twenty Ominor 1.6 1.6 0 0.0% 

358 354 4 1.2% 



Cello Group made ten acquisitions over 

2006 and 2007, recognising a small value 

(1%) for customer contracts but no 

allocation in respect of brand names or 

non-contractual customer relationships. 

This resulted in residual goodwill of 

£35.5m using the ‘synergies’ contention 

to support each balance. Every 

acquisition carried identical disclosure: 

‘The goodwill arising on acquisition is attributable 

to the anticipated profitability of the company and 

future operating synergies from the combination.’ 

Chime Communications have made 

six acquisitions since 2005 resulting in 

£57.6m of goodwill. It recognised a 

small value for customer relationships 

on the acquisition of Fast Track Sales. 

In 2005 Chime disclosed that with 

respect to its acquisition of VCCP, 

management carried out a review of 

intangibles and concluded no value 

could be ascribed to intangibles on the 

basis that: 

‘the company was only formed in 2002 and 

[because of] the nature of the contracts.’ 

It is not clear what is meant by the 

‘nature of the contracts’ – further 

disclosure would have been useful. 

Creston chose to adopt an indefinite-life 

with respect to acquired brands because 

of their: 

‘proven market position and the group’s 

commitment to develop and enhance their value.’ 

However, in 2007 Creston paid £24m for 

ICM Research, £32.1m for Tullo 

Marshall Warren, and £13.2m for PAN 

Advertising, but capitalised just £450k as 

brand names and £1.2m as customer 

contracts, both of which seem particularly 

low even taking into account the nature 

of Creston’s activities. There was no 

reference to non-contractual customer 

relationships in the acquisition note. 

Hasgrove made several acquisitions in 

the period under review recognising 

£17.9m of goodwill, again with no 

intangible allocation. Its accounts 

noted that: 

‘the Directors consider that customer relationships 

are not separable or intangible assets.’ 

International Marketing & Sales 

Group acquired eight businesses in 2007, 

recognising £48.4m of goodwill and no 

intangible assets. Ekay acquired WFCA 

Integrated in 2008, recognising £8.5m of 

goodwill and allocating none of the 

purchase price to intangibles. Neither of 

these companies made reference to 

intangible assets at all in their accounts. 

In its acquisition of eq group, Optimisa 

capitalised customer contracts and 

relationships worth just 4.7% of the total 

intangibles allocation. It states that it 

amortises contracts over 1-18 months 

and relationships over: 

‘an estimation of the tenure of the relationship 

at acquisition.’ 

MKM Group did not mention any 

intangible allocation in its acquisition 

of Leisure World, recognising nearly all 

as goodwill and attributing it to 

synergies and the benefits of entering 

into new markets. 

In acquiring Samplenet e-Research, 

Research Now, on the other hand, 

recognised no customer relationships, 

customer contracts, or brand names, 

with panel costs of £0.4m being the only 

intangible asset recognised on acquisition 

worth £16.9m. Research Now amortise 

these panel costs over 12 months being 

the group’s 

‘estimated average life of a panellist.’ 

As a result £16.1m of goodwill was 

recognised and the group disclosed that: 

‘included in goodwill are certain intangibles 

that cannot be individually separated and 

reliably measured from the acquiree due to 

their nature. These included high calibre staff, 

a reputation for great quality, and the fact the 

acquisition was a ready made platform for 

North America.’ 

In this instance we ask the question that 

if there is a valuable reputation, then is 

there not a valuable brand name? And if 

there is a platform for growth, is there 

not some value in contractual or 

non-contractual customer relationships? 

The Mission Marketing Group, the 

integrated communications agency, has 

made ten acquisitions over the last three 

years with the difference between the 

combined purchase price and combined 

tangible net assets being £87m. This has 

been recognised in full as goodwill with 

the only disclosure regarding intangibles 

allocation being that: 

‘management carried out a review to assess 

whether any intangible assets relating to brand 

names, customer relationships and contractual 

arrangements were acquired as part of the 

transaction. Management concluded that no 

value could be ascribed to these intangible 

assets on the basis that other intangibles and 

goodwill cannot be separately valued reliably, due 

to the nature of the intangible assets in question.’ 

Stakeholders might question why other 

companies in the sector are able to carry 

out such valuations, whereas their 

board cannot. 


Twenty acquired Ominor in 2007 for 

£1.3m with £1.6m recognised as residual 

goodwill and no intangible assets 

allocated at all. There was no reference 

in the accounts to intangible assets but 

it did disclose that: 

‘the goodwill is attributable to reputation, 

customer base and future profitability.’ 

If the acquired company has a valuable 

reputation and customer base then it 

begs the question as to why these 

weren’t separately valued. 



The acquisitions in the 

publishing and events sector 

generated a significant, and 

more consistent, level of 

intangible allocation – likely 

to be because of the more 

tangible nature of the product 

and service offerings of the 

companies involved, and 

(as discussed in the next 

chapter – IP rights) the lack of 

previous capitalisation with 

respect to internally generated 

IP rights, publishing titles and 

customer lists. 

Table 9. Average identified intangible 

fixed assets in the publishing & events 

sub-sector 

Company 

Average IIAs 

Bloomsbury Publishing 58% 

Haynes Publishing 63% 

Informa 67% 

ITE Group 68% 

Johnston Press 77% 

Moneysupermarket.com 62% 

Motivcom 13% 

Pearson 47% 

Reed Elsevier 57% 

Trinity Mirror 35% 

United Business Media 26% 

Wilmington 49% 

YELL 33% 

Trinity Mirror made six acquisitions 

generating £81.1m of goodwill and 

£56.7m of intangible assets – an average 

intangible asset allocation of some 35%. 

The acquisition of Smart Media Services 

and Financial Jobs Online had 

intangibles allocated of nearly 50% from 

the difference between the combined 

purchase price and the fair value of the 

tangible net assets. Trinity groups its 

intangibles into ‘publishing rights and 

titles’ and ‘customer relationships and 

brand names’. Its customer relationships 

and domain name assets are amortised 

between five and ten years but the 

following disclosure was made regarding 

the publishing rights and titles: 

‘the directors consider that publishing rights 

and titles have an indefinite-life due to the 

historical longevity of the brands and the ability 

to evolve the brands in the ever changing media 

landscape. It is not practicable to review 

individual publishing rights and titles due to 

the interdependencies of the inflows within 

the CGUs.’ 

United Business Media averaged a 26% 

intangible allocation across all of its 2007 

and 2008 acquisitions. They recognised 

various intangibles including 

subscription lists (amortised 2-5 years), 

trade marks (amortised ten years), 

databases (amortised 2-10 years), 

customer contracts and relationships 

(1-10 years), software (amortised 5-6 

years), brands (amortised ten years) 

and website (amortised three years). 

Haynes Publishing were the only 

company to capitalise ‘know-how’ as an 

intangible on which they adopted an 

indeterminate life policy. Trademarks 

were also capitalised and classified as 

having an indefinite-life. 

Informa categorise their intangibles 

under booklists (amortised 20 years), 

journal titles (20- 40 years), database 

content and IP (amortised 4-10 years) 

and large scale events and exhibitions 

(8-10 years). 

Motivcom recognised a relatively low 

value of intangible assets for their 

acquisition of Zibrant, but full disclosure 

explained that: 

‘the goodwill arising on the acquisition of Zibrant 

is attributable to the anticipated profitability 

arising from cross-selling opportunities within the 

enlarged Group from both selling acquired 

services to the pre-existing client base and selling 

pre-existing services and products into the 

acquired non-contractual client base, anticipated 

future operating synergies from the combination, 

the account direction and production ability and 

skills of key personnel of Zibrant and the 

premium paid to facilitate a large combination. 

In the context of the latter point, it should be 

noted that the Group could have established its 

own business similar to that of Zibrant. 

However, it would have taken time to build and 


develop such a business and an acquisition, 

although expensive at the outset, is more 

cost-effective in the long run and gives more 

certain and immediate results than building a 

business from scratch. Under IFRS no value 

can be attributed to such intangibles and this 

has contributed to the amount recognised 

as goodwill.’ 

There are still questions here over 

whether the cross-sell synergies 

(with the non-contractual client base) 

are unique or, instead, available to other 

buyers, and therefore should have been 

separately identified (and valued). 

This is positive disclosure setting out 

the basis on which the goodwill has 

been recognised – something sorely 

missing in the advertising & marketing 

services disclosures. 

Reed Elsevier’s two main acquisitions 

were Choicepoint Inc. and BuyerZone 

Inc. with substantial intangibles allocated 

on each (55.9% and 66.7% respectively). 

Reed groups its intangibles into ‘market 

and customer related’ (which includes 

trademarks, imprints, brands, 

subscription bases, lists and 

relationships) amortised over 3-40 years, 

and ‘content, software and other’ 

(which includes content, delivery 

systems, publishing rights, exhibition 

rights and supply contracts) amortised 

over 3-20 years. With respect to the 

residual goodwill, Reed states that it: 

‘represents benefits which do not quality for 

recognition as intangibles, including the ability of 

a business to generate higher returns than 

individual assets, skilled workforces, acquisition 

synergies that are specific to Reed and high 

barrier to market entry.’ 

Moneysupermarket.com used an 

external valuer to value the intangibles in 

respect of their 2007 acquisition. They 

are now amortising market-related 

intangibles over ten years, customer 

relationships over seven years, customer 

lists over three years and technology 

over three years. They define marketrelated 

intangibles as those that are 

primarily used in the marketing or 

promotion of products and services, for 

example trademarks, trade names and 

internet domain names. Customerrelated 

intangibles consist of customer 

lists, customer contracts and relationships, 

and non-contractual customer 

relationships. They go on to say: 

‘relationships with high-profile customers 

provide the group with prominence in the 

marketplace, create volume and traffic on the 

website, and enhance the reputation of the 

brand. Customer lists allow the group to 

undertake targeted marketing activities.’ 

Pearson and Quarto were the only 

companies in the survey that capitalised 

current intangibles assets (on the basis 

they met the IFRS ‘current’ definition 

with respect to the operating cycle of the 

business) – this seems logical as these 

were pre-publication costs. Quarto’s 

policy explains that these: 

‘represent direct costs incurred in the 

development of book titles prior to their 

publication. These costs are carried forward in 

current intangible assets where the book title will 

generate future economic benefits and costs can 

be measured reliably. These costs are amortised 

upon publication of the book title over estimated 

economic lives of three years or less, being an 

estimate of the expected operating cycle of a 

book title.’ 


Overall comments and conclusions 

Content v Contacts 

We expected the differential between 

the percentage of identified intangibles 

within audio & televisual, publishing & 

events and the advertising & marketing 

services sub-sector to be primarily due 

to ‘Content’ ownership within audio 

& televisual and publishing & events 

entities. Advertising & marketing 

services companies focus on ‘Contacts’ 

intangibles not ‘Content’ intangibles, 

and hence attribute proportionately 

lower values to intangible assets. 

Although our survey showed that this 

was the case in some of the deals looked 

at, much of the identified intangible 

value in the audio, televisual and 

publishing deals actually related to 

‘non-content’ assets such as customer 

relationships and trade marks. Both 

of which you would also expect to 

find in the advertising & marketing 

services sector. 


sector appears out of range 

Notwithstanding this differential, 

there is a worryingly large range of 

interpretation within the advertising & 

marketing services sector itself when 

it comes to valuing intangible assets. 

More guidance and insight required 

As this is a new area, companies will 

benefit from more guidance. Another 

factor could be that companies have not 

researched the marketplace with enough 

depth before determining the application 

of their accounting policies. As time goes 

on, so practices and norms will develop, 

but we believe that companies should be 

more rigorous in their analysis and 

valuation of what they acquire as part of 

a business combination. Perhaps a more 

thorough examination of some of the 

factors affecting the price of the acquired 

business – negotiation and due diligence 

for example – might give a clearer 

indication of what companies thought 

they were paying for. A robust challenge 

from their auditors on both the policies 

used and the degree of disclosure 

surrounding their choice of policy 

should also be an expectation. 

Inconsistency between the amortisation 

of separately identified intangible assets 

and goodwill 

Prior to IFRS, when a company made an 

acquisition, goodwill was the excess 

consideration to be capitalised after the 

fair value of net assets acquired was 

deducted from the consideration paid. 

Under FRS 10, goodwill was believed to 

have a finite life and its consumption was 

recognised each year. It was typically 

amortised over 20 years, due to a feature 

of FRS 10 which allowed companies to 

ignore impairment reviews on intangible 

assets (including goodwill) with a life of 

less than 21 years. Under IFRS the 

presumption is that goodwill has an 

indefinite-life through constant 

expenditure on replenishment, but must 

be tested for impairment annually (or 

more frequently if events or changes in 

circumstances indicate that it might be 

impaired) in accordance with IAS 36 

‘Impairment of Assets’. Why is the 

treatment of goodwill inconsistent with 

the treatment of other intangibles whose 

value is not presumed to be sustained 

through continued replenishment? 

Increased information is available 

The improvement in reporting on 

intangibles and segmental reporting 

means that it is easier than in the past to 

spot inconsistencies in reporting, and 

potentially for analysts and shareholders 

to question management more closely 

about the carrying value of intangible 

assets recognised at the point of 

business combinations. 

Disclosure around what ‘goodwill’ 

represents is lacking 

Many companies disclose simply that 

goodwill represents ‘synergies’. 

We do not believe this is sufficient 

disclosure and question whether the 

requirements of IAS 38 should be 

strengthened in this area. 

The process of evaluating goodwill 

compels management to identify and 

quantify the sources of cashflows that 

go on to support the value of goodwill. 

If this is a struggle and the assumptions 

about cashflows are unrealistic or 

indefinable, not only does it suggest 

an overpayment but it might also erode 

value as a lack of measurability leads to 

a lack of attention by management in 

the areas previously identified as 

representing ‘synergies’. 


Section Title 

Chapter 2 

IP rights 


IP is integral to how media businesses operate, but many continue to grapple with how the value of IP 

created by their businesses can be recognised in their financial statements. So how do media 

companies deal with internally generated or acquired IP? What do they capitalise and how do they 

amortise it? 

The background 

Under UK accounting 

standards, the treatment of 

intangible fixed assets is dealt 

with within two different 

standards. FRS 10 deals with 

goodwill and intangible assets, 

SSAP 13 deals with Research 

and Development costs. 

Much of the development work on 

FRS 10 was carried out during the late 

1980s and early 1990s, in a period of 

recession in the UK. At that time there 

was a backlash against some of the 

accounting practices of the 1980s that 

had led to the capitalisation of brands, 

and hence FRS 10 contained provisions 

to ban the capitalisation of brands and 

other internally-generated intangible 

fixed assets. 

The standard was not particularly 

helpful for the media sector. Companies 

that developed valuable content in-house 

for exploitation potentially could not 

recognise its value on the balance sheet. 

Some businesses considered their 

content as a tangible fixed asset rather 

than intangible. This was on the basis 

that the value in, say, a television 

programme, lay as much in the physical 

master tape of the programme, which 

was tangible, as in the copyright 

ownership of the programme. It was 

therefore dealt with under FRS 15, 

tangible fixed assets, rather than FRS 10. 

Another method was to consider the 

creation of each piece of content as a 

piece of research and development. 

Under SSAP 13, certain costs of 

development work carried out internally 

could be capitalised provided that a 

number of criteria were met. 

Internationally, FRS 10 and SSAP 13 

were pushed together into IAS 38 

‘Intangible Assets’, which broadly 

speaking allowed the capitalisation of 

internally generated intangibles using 

the SSAP 13 criteria, although 

capitalisation of brands and mastheads 

was still not permitted. 

IFRS for SMEs 

It was proposed by the ASB 

that IAS 38 (in the form of 

FRED 37) would replace the 

UK standard FRS 10. However, 

this move was shelved awaiting 

convergence. Since then, we 

have had the publication of the 

proposed IFRS for SMEs. 

IFRS for SMEs prohibits the 

capitalisation of internally generated 

IP rights. This potentially creates a 

problem for smaller media companies, 

while banks and other lenders get used 

to the idea of these companies not 

recognising the cost of their content on 

their balance sheets. 

The effect on the balance sheet of this 

essential difference between IFRS and 

IFRS for SMEs could give rise to early 

adoption of full IFRS by smaller media 

companies (see Appendix 3) in order to 

increase the asset value shown on their 

balance sheets in line with their 

pre-IFRS levels. 


Chapter 2 – IP rights 

The IAS guidance 

IAS 38 is the international 

standard guiding the treatment 

of internally generated or 

acquired IP rights. The standard 

defines an intangible asset as 

‘an identifiable non-monetary 

asset without physical 

substance’ and goes on to 

explain that entities ‘frequently 

expend resources, or incur 

liabilities, on the acquisition, 

development, maintenance or 

enhancement of intangible 

resources such as… intellectual 

property.’ 

Acquired IP rights 

For acquired IP to be recognised as an 

intangible, the asset must meet the 

identifiability (1), control (2), and future 

economic benefit (3) criteria: 

1. ‘An asset meets the identifiability criterion 

in the definition of an intangible asset 

(IAS 38.12) when it: 

a. is separable, ie is capable of being separated 

or divided from the entity and sold, 

transferred, licensed, rented or exchanged, 

either individually or together with a related 

contract, asset or liability; or 

b. arises from contractual or other legal rights, 

regardless of whether those rights are 

transferable or separable from the entity or 

from other rights and obligations.’ 

2. ‘An entity controls an asset if (IAS38.13) the 

entity has the power to obtain the future 

economic benefits flowing from the underlying 

resource and to restrict the access of others 

to those benefits’ 

3. ‘The future economic benefits flowing from 

an intangible asset may include (IAS 38.17) 

revenue from the sale of products or services, 

cost savings, or other benefits resulting from 

the use of the asset by the entity.’ 

Internally generated IP rights 

IAS 38.57 allows costs arising from 

‘development’ (or from the development 

phase of an internal project) to be 

capitalised as an intangible asset if, and 

only if, an entity can demonstrate all of 

the following: 

a. ‘the technical feasibility of completing the 

intangible asset so that it will be available for 

use or sale 

b. its intention to complete the intangible asset 

and use or sell it 

c. its ability to use or sell the intangible asset 

d. how the intangible asset will generate 

probable future economic benefits. Among 

other things, the entity can demonstrate the 

existence of a market for the output of the 

intangible asset or the intangible asset itself 

or, if it is to be used internally, the usefulness 

of the intangible asset 

e. the availability of adequate technical, 

financial and other resources to complete 

the development and to use or sell the 

intangible asset 

f. its ability to measure reliably the expenditure 

attributable to the intangible asset during its 

development.’ 

Expenditure on internally generated 

brands, mastheads, publishing titles, 

customer lists and items similar in 

substance cannot be distinguished from 

the cost of developing the business as a 

whole. Therefore, such items are not 

recognised as intangible assets. 

Amortisation of IP rights 

IAS 38 is relatively light on amortisation 

guidance, with the overriding aim being 

around allocating the depreciable 

amount on a ‘systematic basis’ 

(IAS 38.97) over the asset’s useful life. 

It states: 

‘The depreciable amount of an intangible asset 

with a finite useful life shall be allocated on a 

systematic basis over its useful life. Amortisation 

shall begin when the asset is available for use, ie 

when it is in the location and condition necessary 

for it to be capable of operating in the manner 

intended by management. The amortisation 

method used shall reflect the pattern in which the 

asset’s future economic benefits are expected to 

be consumed by the entity. If that pattern cannot 

be determined reliably, the straight-line method 

shall be used.’ 


Audio & televisual companies analysis 

The Super Indies 

These companies, by virtue of 

the fact they have in-house 

distribution businesses as well as 

production units, tend to have 

both categories of IP rights – 

internally generated and acquired. 

Shed Media’s programming assets were 

reclassified on transition to IFRS from 

tangible assets to intangible assets on the 

basis they met the IAS 38.57 

capitalisation criteria. RDF Media 

applied a similar policy to their 

programming catalogue that was already 

on the balance sheet. Clearly, IP rights 

do not fit in the IFRS ‘Property, plant 

and equipment’ classification. 

Shed Media and DCD Media adopt a 

slightly different policy to RDF Media 

in respect of on going programming. 

Shed Media and DCD Media both 

capitalise all programme costs as they 

are incurred up to completion of the 

programme as internally generated 

intangible assets – presumably on the 

basis that the entire period of production 

qualifies as ‘development’ expenditure 

under IAS 38. 

Where programmes in development are 

not considered to be proceeding, the 

related costs are written off. For those 

programmes that are proceeding or are 

commissioned, the costs are amortised in 

the ratio that actual revenue recognised 

in that period bears to estimated ultimate 

revenue, after making provision for 

anticipated losses or overspends. 

This method places a significant emphasis 

on forecasting techniques; interestingly 

neither company disclose the forecasting 

techniques used in assessing ultimate 

revenues and how they mitigate the risks 

inherent in those forecasts. We find this 

surprising given the significant impact 

those forecasts must be having on the 

results reported. 

In contrast RDF Media continues to 

expense all production costs, capitalising 

only where a production is deficit 

financed, and then amortising them 

40%/40%/20% over three years – 

presumably mirroring their expected 

revenue profile. This policy essentially 

assumes that only the deficit financed 

part of the production cost qualifies as 

‘development’ expenditure. It may 

present a cleaner, and more transparent 

position in respect of the income 

statement, but is the inherent value of 

the IP that has been created really 

captured on the balance sheet? 

Interestingly, in 2007 RDF adopted an 

‘ultimate revenue’ policy to amortise 

certain programme costs. This applied 

when significant contribution is 

anticipated to come not solely from the 

initial broadcast licence over the 

production period, but also from 

subsequent worldwide distribution 

and exploitation over several years. 

The accounting policy states that total 

costs of production are amortised across 

the contribution derived from the initial 

licence fee and that from future 

anticipated exploitation. Further 

disclosure elaborated on this policy: 

‘Production and licence revenues are recognised 

on a straight line basis over the length of the 

production as are the costs associated with 

them. Revenues from exploitation are recognised 

in line with the Group’s existing policy with the 

balance of production costs amortised in line with 

revenues recognised versus total anticipated 

forecasted revenues. The forecasted future 

exploitation revenues are reviewed regularly to 

ensure the forecasted gross contribution 

exceeds the balance of capitalised cost. 

Where future forecasted revenues reduce 

permanently versus original estimates, the rate 

of amortisation increases. Where future 

forecasted revenues increase, the rate of 

amortisation will remain as originally estimated. 

The rationale for the adoption of the new 

approach, where applicable, is that the Group is 

entering into diverse production models in terms 

of revenue structures, time being invested to 

produce the content and the ultimate value of the 

content to the Group. The advantage with this 

policy is that it more closely matches the costs 

incurred to produce the asset with the revenues 

it ultimately will generate.’ 

RDF also added useful disclosure in 

respect of their forecasting techniques, 

which are clearly instrumental in how 

the above policy affects the financial 

results. This policy reads: 

‘In applying the Group’s accounting policies with 

respect to revenue and asset recognition, the 

group has adopted varying forecasting methods 

that involve significant judgments and estimates. 

In the case of revenue recognition, ultimate 

revenues and ultimate contributions (together 

‘ultimate estimates’) from certain production and 

programme rights have been forecasted as a 

basis on which to recognise revenue and 

contribution across the life of a programme 

(see revenue recognition accounting policy for 

more detail). In the case of asset recognition, 

ultimate estimates from certain production and 

programme rights have been forecasted as a 

basis to support the capitalisation of investment 

in programmes (see production investments 

accounting policy for more detail). 

Significant judgments and estimates have been 

adopted in determining these forecasts and 

ultimately, the amounts recognised. The Group 

has drawn upon the experience of its senior 

operating executives in determining the ultimate 



estimates from the exploitation, exhibition, and 

sale of secondary and tertiary rights in all 

markets and territories over the useful 

economic life of the associated rights. 

The following constraints have been applied to 

these estimates: 

• for a completed episodic television series, 

ultimate estimates have been forecasted over 

a period not exceeding ten years from 

delivery of the first episode 

• for an episodic television series still in 

production, ultimate estimates have been 

forecasted over a period not exceeding five 

years from delivery of the most recent 

episode (if later than delivery of the 

first episode) 

• estimates of all secondary market revenue 

have been included only where the Group is 

satisfied that it will be able to successfully 

license those episodes already produced 

and where there is a commitment to produce 

the remainder 

• revenue and associated contribution has been 

included in ultimate estimates where: 

–– persuasive evidence exists that revenue can 

be generated from secondary markets or 

territories (estimates from newly developing 

territories have only been used if an existing 

arrangement provides convincing evidence 

that the entity will realise such amounts) 

–– persuasive evidence exists that revenue 

can be generated from third party 

licensing arrangements to market 

programme-related products 

–– persuasive evidence exists that wholesale or 

retail revenue can be generated from the sale 

of peripheral items (such items as toys and 

merchandising) attributable to the exploitation 

of the programme 

• estimates of wholesale promotion or 

advertising reimbursement from third parties 

have not been included in ultimate estimates, 

but rather have been offset against 

exploitation costs 

• ultimate estimates have not been discounted 

to their present value. In addition, ultimate 

estimates have not included projections for 

future inflation 

• all foreign currency estimates of future 

revenues and contribution have been based 

on current spot rates.’ 

In terms of acquired IP rights, all three 

of the groups capitalise advances paid in 

respect of distribution rights from third 

party producers as intangible assets 

where they are ‘supportable by future 

revenues’ – these assets presumably meet 

the identifiability, control and future 

economic benefits criteria of IAS 38 to 

support capitalisation. 

Talent Group – a smaller producer – 

carries costs relating to in-progress 

productions in current assets and writes 

them off if they do not proceed within 

two years of inception – this infers they 

are carrying development costs 

on-balance sheet within current assets. 

Their acquired IP rights are classified 

as intangibles and are written off over 

ten years. 

The Broadcasters 

ITV and BSkyB are captured by 

this survey but we considered 

that a wider comparison among 

all of the main UK broadcasters 

– including the BBC, Channel 4 

and Channel 5 which all report 

under IFRS – would give greater 

context and completeness to the 

analysis. 

In terms of capturing, capitalising and 

amortising their IP rights, the 

broadcasters are in a fundamentally 

different position to the independent 

producers since the shake up of the 

Communications Act in 2003. They no 

longer retain or own the IP created by 

independent producers and as such are 

not capitalising, and amortising, 

programme cost in the same way. 

Most do have in-house production units, 

and thus originate and own IP rights, 

as well as retaining their back catalogues. 

But the IP rights from commissioned 

programmes are no longer owned by the 

broadcasters. What we are seeing now is 

a reduction in broadcaster IP 

capitalisation and an increase in 

programme cost coming through the 

current asset position in their balance 

sheets as they fund the production of the 

content they have commissioned. 

This indeed is the case with all of the 

main broadcasters showing investments 

in programming in the ‘inventories’ part 

of the balance sheet. What is interesting 

from the analysis, however, is how the 

broadcasters are amortising or writing 

off those programme costs or 

‘inventories’. There is no clear theme 

here with each broadcaster disclosing 

policies that are subtly different from 

each other, but yet could result in 

considerably different financial 

statement positions. 

STV group carry the costs of film and 

programming as inventory and write 

them off 70%/30% on first and second 

transmission respectively. 

BSkyB also carries programme costs as 

inventory and adopts different write off 

policies for each genre: 

‘Programme inventories are stated at the lower 

of cost and net realisable value (‘‘NRV’’), 

including, where applicable, estimated subscriber 

escalation payments, and net of the accumulated 

expense charged to the income statement to 

date. Programming rights are included as 

inventories when the legally enforceable licence 

period commences and all of the following 


conditions have been met: (a) the cost of each 

programme is known or reasonably determinable; 

(b) the programme material has been accepted 

by the Group in accordance with the conditions 

of the rights, and (c) the programme is available 

for its first showing. Prior to being included in 

inventories, the programming rights are classified 

as television programme rights not yet available 

for transmission and not recorded on the Group’s 

balance sheet and are instead disclosed as 

contractual commitments (see note 27). 

Payments made upon receipt of commissioned 

and acquired programming, but in advance of 

the legal right to broadcast the programmes, 

are treated as prepayments. 

The cost of television programme inventories is 

recognised in the operating expense line of the 

income statement, primarily as described below: 

Sports – 100% of the cost is recognised in the 

income statement on the first broadcast or, 

where the rights are for multiple seasons or 

competitions, such rights are principally 

recognised on a straight-line basis across the 

seasons or competitions. 

News – 100% of the cost is recognised in the 

income statement on first broadcast. 

General entertainment – the cost is 

recognised in the income statement based on 

the expected value of each planned broadcast. 

Movies – the cost is recognised in the income 

statement on a straight-line basis over the period 

of broadcast rights. 

Where programme rights are surplus to the 

Group’s requirements, and no gain is anticipated 

through a disposal of the rights, or where the 

programming will not be broadcast for any 

other reason, a write-down to the income 

statement is made.’ 

BSkyB also added commentary in its 

significant estimates and judgments 

section stating: 

‘The key area of accounting for programming 

inventory requiring judgement is the assessment 

of the appropriate profile over which to 

recognise amortisation in the income statement. 

This assessment requires the Group to form an 

expectation of the number of times a programme 

will be broadcast and the value associated with 

each broadcast. For general entertainment 

programming, in order to perform this 

assessment of amortisation profile, we consider 

the expected number of viewers a programme is 

likely to achieve on repeat broadcast, the 

alternative programming available to the 

programming scheduler, the potential marketing 

benefits relating to the scheduling of certain 

programmes and the Group’s assessment of its 

competitors’ scheduling intentions when 

determining the amount of programme expense 

to recognise for each broadcast. Acquired movie 

rights are amortised on a straight-line basis over 

the period of the transmission rights. Where 

contracts for sports rights provide for multiple 

seasons or competitions, they are amortised on 

a straight-line basis across the season or 

competition as our estimate of the benefits 

received from these rights is determined to be 

most appropriately aligned with a straight-line 

amortisation profile.’ 

Channel 5 discloses that all programme 

rights are stated at the lower of cost and 

net realisable value and are 

‘consumed based on the expected number of 

transmissions.’ 

This would appear to suggest it could 

forecast that a series will air three times 

and it would carry the cost over the 

dates of transmission of the three airings 

– this doesn’t seem unreasonable if that 

is how it expects to consume the asset it 

has purchased – and clearly this is 

spreading the level of expense recognised 

in the income statement. 

In contrast, Channel 4 writes off 

programme rights in full on first 

transmission. This is significantly 

different to Channel 5. Certain feature 

films are written off over more than one 

transmission in line with total expected 

revenue (similar to the super-indies 

ultimate-income forecast model). 

ITV is similar to Channel 4 in that it 

writes off in full on first transmission 

and certain features are written off in line 

with total expected revenue. It does say 

though that consideration is made of the 

number of transmissions available in the 

schedule over the licence period when 

assessing net realisable value of those 

rights still carried on the balance sheet. 

ITV’s policy on programme rights is 

as follows: 

‘Where programming, sports rights and film 

rights are acquired for the primary purpose of 

broadcasting, these are recognised within current 

assets. Assets are recognised when the Group 

controls, in substance, the respective assets and 

the risks and rewards associated with them. 

Acquired programme rights assets are 

recognised as payments are made and are 

recognised in full when the acquired 

programming is available for transmission. 

Programming produced internally, either for the 

purpose of broadcasting or to be sold in the 

normal course of the Group’s operating cycle, 

is recognised within current assets at 

production cost. 

Programme costs and rights, including those 

acquired under sale and leaseback arrangements, 

are written off to operating costs in full on first 

transmission except certain film rights and 

programming for digital channels which are 

written off over a number of transmissions. 

Programme costs and rights not yet written off 

are included in the balance sheet [current assets] 

at the lower of cost and net realisable value. 

In assessing net realisable value consideration is 

given to the contracted sales price and estimated 

costs to complete for programmes in production, 

and the estimated airtime value of programme 

stock, sports rights and film rights. In assessing 

the airtime value of programme stock and film 

rights consideration is given to whether the 

number of transmissions purchased can be 

efficiently played out over the licence period. 



Any reversals of write downs for programme 

costs and rights are recognised as a reduction 

in operating costs.’ 

ITV writes off acquired film libraries 

over 20 years using a sum of digits 

method. 

UTV Media states that: 

‘intangible assets created within the business 

are not capitalised and are expensed.’ 

presumably because they don’t meet the 

IFRS capitalisation criteria. Its radio and 

television licences are carried as 

intangible assets, with an indefinite 

useful life however. This is allowed 

under IAS 38.94: 

‘The useful life of an intangible asset that arises 

from contractual or other legal rights shall not 

exceed the period of the contractual or other 

legal rights, but may be shorter depending on 

the period over which the entity expects to use 

the asset. If the contractual or other legal rights 

are conveyed for a limited term that can be 

renewed, the useful life of the intangible asset 

shall include the renewal period(s) only if there 

is evidence to support renewal by the entity 

without significant cost.’ 

The Distribution 

Companies 

Considering what these 

companies do (invest in 

programme rights) you would 

expect significant policy 

disclosure with respect to the 

capitalisation and amortisation 

of rights. These rights fall into 

the intangible assets category in 

all cases. 

ContentFilm separates its rights 

purchases into six distinct categories – 

each carrying its own amortisation basis: 

‘Television library rights – ultimate revenue 

amortisation model (normally ten years) 

Film library rights – ultimate revenue 


DVD library rights – ultimate revenue 


Investments in Film/TV rights – 

amortisation as recouped (normally 12-36 

months after completion) 

Investments in DVD rights – ultimate revenue 

model (normally ten years) 

Investments in ‘first look’ rights – ultimate 

revenue model where attributable to a title and 

over the period of the first look rights where it is 

a general first look right.’ 

cost of completed rights over the estimated 

useful lives except where the asset is not yet 

available for exploitation. The average life of 

assets is five years and the amortisation charge 

is recognised in the income statement within 

cost of sales.’ 

Indian Film Company amortises film 

costs using the individual-film-forecast 

method. It states that: 

‘Under the individual-film-forecast method, such 

costs are amortised for each film in the ratio that 

current period revenue for such films bears to 

management’s estimate of remaining 

unrecognised ultimate revenue as at the 

beginning of the current fiscal year. Management 

regularly reviews and revises, where necessary, 

its total estimates on a film-by-film basis, 

which may result in a change in the rate of 

amortisation and/or a write down of the 

intangible asset to fair value. The amortisation 

charge is included under cost of sales in the 

Consolidated Income Statement. 

The assets are assessed for impairment 

whenever events or changes in circumstances 

indicate that the carrying value of an asset may 

not be recoverable. If any such indication of 

impairment exists, the Group makes an estimate 

of its recoverable amount.’ 

UTV’s programming is carried in 

current assets and written off on first 

transmission. 

The BBC writes off programme rights on 

first transmission except when further 

showings are scheduled – in which case 

they are written off over their 

transmisson profile. Programmes 

commissioned from indies are written 

off on first transmission except for costs 

relating to prepaid repeats. 

Eros International presents its content 

rights in three categories – productions, 

film and content rights, and content 

advances. It does not explicitly say how 

it amortises these rights, simply that a 

charge is calculated and expensed over 

the estimated useful life of the asset. 

It does state that the average life of assets 

is five years. Its policy reads: 

‘Investments in films and associated rights, 

including acquired rights and distribution 

advances in respect of completed films, are 

stated at amortised cost less provision for 

impairment. A charge is made to write down the 

Metrodome writes off costs in line with 

actual income flows against future 

income and states that: 

‘Expenditure on the Group’s film distribution 

library is carried forward and recognised as an 

asset when it is estimated that sufficient future 

income will be earned to cover recoupment of 

the costs. These costs are written off in line 

with actual income flows calculated in 

accordance with licensor agreements. 

Pre-production expenditure is recognised when 

the costs may be recouped through reduced 

commission payments. 


The estimate of future income depends on 

management judgement and assumptions based 

on the pattern of historical revenue streams and 

the remaining life of each film contract.’ 

Metrodome also adds useful 

commentary in its significant estimates 

and judgments section on both its film 

library policy and its inventories policy: 

Although IAS 38 is now capturing all intangible 

assets, it is not particularly prescriptive with 

respect to amortisation methodologies. 

Film distribution library asset 

‘Expenditure on the Group’s film distribution 

library is carried forward and recognised as an 

asset when it is estimated that sufficient future 

income will be earned to cover recoupment of 

the costs. To calculate the provision for 

impairment for each film, the carrying value of 

the asset is compared to the expected revenue 

streams. Estimates of future income are made, 

film title by title, based on the following: 

–– total revenue to date on each title 

–– revenue for the current year on each title 

–– historic revenue patterns by film category 

–– contract expiry dates 

–– quarterly forecast 

–– commercial knowledge and experience 

–– future revenues are discounted to present 

values at a rate of 10%. 

Where expected revenue is lower than the 

carrying value of the asset, the value of the asset 

is impaired to reflect the expected revenue. 

Inventories 

Expenditure on the Group’s film distribution 

library is normally held as a non-current asset, 

including expenditure on replication of DVDs 

and packaging costs. If a film has been 

successful with total revenues exceeding total 

costs, its value will be nil. However, if future 

revenues are expected on these fully recouped 

titles, it is appropriate to recognise a value for 

the inventories held at the balance sheet date. 

In this instance, these inventories are stated 

in the balance sheet as a current asset at the 

lower of cost and NRV in accordance with 

IAS 2 Inventories.’ 

DQ Entertainment has a comprehensive 

policy covering advances, projects under 

development, subsequent expenditure 

and amortisation: 

‘Distribution rights that are acquired by the Group 

are stated at cost less accumulated amortisation 

and impairment losses. 

Advances paid for distribution rights 

Advances paid for distribution rights include 

amounts paid to the producers for acquisition of 

the distribution rights. These advances are 

transferred to distribution rights on completion of 

the entire production activities and when the 

asset is ready for exploitation. No amortisation is 

charged on these advances until they are 

transferred to the distribution rights. Up to that 

point, they are assessed annually for impairment. 

Projects under development 

Direct or indirect expenses incurred on the 

Development of Projects in order to create 

Intellectual Property or Content, which are 

exploited on any form of media are capitalized as 

an intangible asset under development in 

accordance with IAS 38 (intangible assets). In the 

event, the project is not scheduled for production 

within three years, or project is abandoned, the 

carrying value of the Development Rights would 

be expensed in the year in which such project is 

discontinued or abandoned. 

Subsequent expenditure 

Subsequent expenditure on capitalised intangible 

assets is capitalised only when it increases the 

future economic benefits embodied in the 

specific asset to which it relates. All other 

expenditure is expensed as incurred. 

Amortisation 

Amortisation is charged to the income statement 

on a straight-line basis over the estimated useful 

lives of intangible assets. Intangible assets are 

amortised from the date they are available for 

use. The estimated useful lives are the term of 

the licensing agreement or 10 years which ever 

is less. Useful lives for individual assets are 

determined based on the nature of the asset, 

its expected use, the length of the legal 

agreement or patent and the period over which 

the asset is expected to generate economic 

benefits for the Group (‘Economic life’).’ 



All companies have stated the different 

classes of IP rights they are capitalising 

and the respective amortisation method 

adopted, thus giving clear and 

comprehensive disclosure. 

The most interesting area, however, in 

respect of the audio & televisual 

distributors’ IP rights, is the adoption of 

the ‘income-forecast’ amortisation 

methodology. This is a methodology 

that has been around for some time and 

has been widely adopted by the US film 

studios as it is mandated under specific 

US accounting guidance. Their 

equivalents in the UK were left to their 

own devices in the past, resulting in a 

multitude of policies ranging from IP 

being recognised in current assets with 

no amortisation policy being disclosed, 

to IP being capitalised as a tangible or 

intangible asset and amortised on a 

straight line or income-forecast basis. 

As explained in the opening paragraphs 

of this chapter, although IAS 38 is now 

capturing all intangible assets, it is not 

prescriptive with respect to amortisation 

methodologies. DQ Entertainment and 

Eros International were the only 

distributors in the sample not using the 

‘income forecast’ method; both used 

systematic methodologies – which, as 

IAS 38 .97 explains, should be used 

if the pattern in which the asset’s future 

economic benefits are expected to be 

consumed cannot be determined 

reliably. Presumably the uncertainties in 

the income forecasts or ‘future economic 

benefits’ for these assets prevented 

the directors from being able to 

rely upon those forecasts as a basis 

for amortisation. 

Those companies that do use the 

income forecasting method would be 

expected to disclose this as a key source 

of estimation uncertainty in accordance 

with IAS 1.116. 




Marketing & advertising 

services companies have 

significantly less internally 

generated IP rights that can be 

capitalised under IAS 38 

compared with the other two 

sub-sectors: 

This is to be expected as their businesses 

are predominantly based on the 

provision of professional services in their 

chosen areas, and the development of 

brands and processes to complement 

those services. Although these processes 

create value in the businesses, they are 

not able to be capitalised under IAS 38. 

It is only at the point of business 

combination that the true value of the 

brand names, customer relationships and 

customer lists of these companies make 

their way onto the balance sheet, 

as discussed in Chapter 1. 

The market research companies do 

stand out, however, in that they 

capitalise internally generated software 

and panel costs – which are particular to 

their businesses. YouGov, Research 

Now and Toluna all capitalised 

consumer panel costs, amortising them 

over five years, one year, and 1-2 years 

respectively. YouGov also stated 

that they had adopted an indefinite-life 

policy with respect to patents 

and trademarks. 

In summary, the lack of internally 

generated IP on the balance sheets across 

the advertising & marketing services 

sub-sector comes as no surprise and 

highlights an essential difference 

between this and the other two 

sub-sectors of media. 

It is only at the point of business combination 

that the true value of the brand names, 

customer relationships and customer lists of 

these companies make their way onto the 

balance sheet. 



Publishing & events companies analysis 

As noted above, IAS 38.64 

specifically excludes expenditure 

on internally generated brands, 

mastheads, publishing titles and 

customer lists for recognition as 

intangible assets, so we would 

not expect a significant level 

of capitalisation in this area. 

This was indeed the case. 

Unfortunately, these happen to 

be four of the most valuable 

assets that publishing and events 

companies create. 

Publishing companies have had to live 

with this situation for many years now. 

This can make comparisons between 

businesses difficult at times. Companies 

that have grown organically and 

developed titles internally will tend to 

have a lower level of assets in their 

balance sheets compared with companies 

that have grown by acquisition (where 

the fair value of assets acquired is 

disclosed). Although the ‘organics’ 

balance sheets might seem weaker than 

the ‘acquirers’, their return on capital 

ratios will be stronger, given that the 

‘organics’ have reduced their capital 

employed by writing off title 

development costs. Also, the ‘organics’ 

do not have to suffer any ongoing 

amortisation or impairment costs in 

respect of these intangible assets, 

having written off the costs to develop 

as incurred. 

It will be interesting to see the changes 

in the intangible capitalisation policies 

of companies in this sector as the 

publishing model migrates from a 

traditional one to a cross platform, 

cross media form of delivery where 

‘development’ expenditure that ought to 

be capitalised could be significant. 

Pearson’s policy with respect to its 

recognition of ‘newspaper development 

costs’ highlights this point perfectly. 

It states that: 

‘Investment in the development of newspaper 

titles consists of measures to increase the 

volume and geographical spread of circulation. 

The measures include additional and enhanced 

editorial content extended distribution and 

remote printing. These costs are expensed as 

incurred as they do not meet the criteria under 

IAS 38 to be capitalised as intangible assets.’ 

Going forward, we could see an 

argument being presented for capitalising 

newspaper development costs relating to 

new models or formats of distribution. 

A further point of note in this sector 

was Pearson’s and Quarto’s recognition 

of ‘pre-publication costs’ as current 

intangible assets as opposed to 

inventories or non-current intangible 

assets in the way the companies in the 

television sector do. Quarto states: 

‘Pre-publication costs represent direct costs 

incurred in the development of book titles prior to 

their publication. These costs are carried forward 

in current intangible assets where the book title 

will generate future economic benefits and costs 

can be measured reliably. These costs are 

amortized upon publication of the book title over 

estimated economic lives of three years or less, 

being an estimate of the expected operating 

cycle of a book title. The investment in 

prepublication has been disclosed as part of the 

investing activities in the cash flow statement.’ 

Pearson’s policy was similar in this area: 

‘Pre-publication costs represent direct costs 

incurred in the development of educational 

programmes and titles prior to their publication. 

These costs are recognised as current intangible 

assets where the title will generate probable 

future economic benefits and costs can be 

measured reliably. Pre-publication assets are 

amortised upon publication of the title over 

estimated economic lives of five years or less, 

being an estimate of the expected operating life 

cycle of the title, with a higher proportion of the 

amortisation taken in the earlier years. 

The investment in pre-publication assets has 

been disclosed as part of cash generated from 

operations in the cash flow statement. 

The assessment of the recoverability of prepublication 

assets and the determination of the 

amortisation profile involve a significant degree 

of judgement based on historical trends and 

management estimation of future potential 

sales. An incorrect amortisation profile could 

result in excess amounts being carried forward 

as intangible assets that would otherwise have 

been written off to the income statement in an 

earlier period.’ 

Going forward, we could 

see an argument being 

presented for capitalising 

newspaper development 

costs relating to new 

models or formats of 

distribution. 


Overall comments and conclusions 

How has IFRS impacted? 

A key difference between UK GAAP 

previously adopted and IFRS in respect 

of the capitalisation of intangible assets, 

has meant that audio & televisual 

businesses no longer need to take the 

approach of considering their film, 

television programme or music libraries 

as tangible fixed assets, showing them 

as internally generated intangible 

assets instead. 

How will IFRS for SMEs impact? 

Although full IFRS clarifies and 

improves the reporting position for 

those listed companies in the audio & 

televisual sector, under the proposals 

published in mid 2009, any unquoted 

companies would be prohibited from 

capitalising such assets under the IFRS 

for SME standards. This will not aid 

cross-sector comparison, particularly 

between mid-cap listed companies and 

large privately-held companies. 

Is the balance sheet capturing 

all intangibles? 

Although IAS 38 permits the 

capitalisation of certain internally 

generated intangible assets, it prohibits 

the capitalisation of others, specifically 

brands, mastheads, publishing titles and 

customer lists. This adversely affects the 

balance sheet net asset totals of 

companies in the publishing & events 

sub-sector as these are four of the more 

valuable intangible assets that are 

generated by these businesses. 

To a degree, this prohibition also 

adversely affects the balance sheets of 

companies in the advertising & 

marketing services sub-sector as well. 

The effect would be more keenly felt in 

both sub-sectors by those businesses 

that expand primarily by organic 

growth and not by acquisition. 

Companies that grow by acquisition and 

carry out fair value exercises identify 

and value intangibles acquired on their 


Where are key judgements made 

by management? 

A theme running throughout this section 

was the lack of disclosure in respect of 

judgments and key sources 

of estimation which is required under 

IAS 1. This is a particularly useful 

disclosure in understanding how 

management have developed, and are 

monitoring their amortisation policies. 

[The treatment of intangible assets under IFRS for 

SMEs] will not aid cross-sector comparison, 

particularly between mid-cap listed companies and 

large privately-held companies. 

40 IFRS in Media the media Surveysector

Section Title 

Chapter 3 

Revenue 

recognition 

and 

segmentation 

IFRS Media Survey 41

Sector-wide segmentation analysis 

Our survey captured segmental reporting under both IAS 14 ‘Segment reporting’ and IFRS 8 

‘Operating segments’ as both standards were in force during the accounting periods under review. 

IFRS 8 requirements applied for accounting periods beginning on or after 1 January 2009; 

early adoption was permitted but during the period covered most companies were still reporting 

under the IAS 14 criteria. 

‘IAS 14 v IFRS 8 – key changes 

Identification of segments – IFRS 8 requires 

amounts to be disclosed based on the 

components of the entity that management uses 

to make decisions about operating matters. 

It requires identification of operating segments 

on the basis of internal reports that are regularly 

reviewed by the entity’s chief operating decision 

maker in order to allocate resources to the 

segment and assess its performance. IAS 14 

required identification of two sets of segments – 

one based on related products and services, 

and the other on geographical areas. IAS 14 

regarded one set as primary segments and the 

other as secondary segments. 

Measurement of segment information – 

IFRS 8 requires the amount reported for each 

operating segment item to be the measure 

reported to the chief operating decision maker 

for the purposes of allocating resources to the 

segment and assessing its performance. IAS 14 

required segment information to be prepared in 

conformity with the accounting policies adopted 

for preparing and presenting the financial 

statements of the consolidated group or entity. 

IAS 14 defined segment revenue, segment 

expense, segment result, segment assets and 

segment liabilities. IFRS 8 does not define these 

terms, but requires an explanation of how 

segment profit or loss, segment assets and 

segment liabilities are measured for each 

reportable segment. 

Disclosure – Among other things, IFRS 8 

requires an entity to disclose the following 

information: 

a. factors used to identify the entity’s operating 

segments, including the basis of organisation 

(for example, whether management organises 

the entity around differences in products and 

services, geographical areas, regulatory 

environments, or a combination of factors 

and whether segments have been 

aggregated), and 

b. types of products and services from which 

each reportable segment derives its revenues. 

IAS 14 required the entity to disclose specified 

items of information about its primary segments. 

IFRS 8 requires an entity to disclose specified 

amounts about each reportable segment, if the 

specified amounts are included in the measure 

of segment profit or loss and are reviewed by 

or otherwise regularly provided to the chief 

operating decision maker. 

IFRS 8 requires an entity, including an entity 

with a single reportable segment, to disclose 

information for the entity as a whole about its 

products and services, geographical areas, 

and major customers. This requirement applies, 

regardless of the entity’s organisation, if the 

information is not included as part of the 

disclosures about segments. IAS 14 required the 

disclosure of secondary segment information for 

either industry or geographical segments, 

to supplement the information given for the 

primary segments. 

IFRS 8 seems instinctively to be a more 

pragmatic standard than IAS 14. 

Its reporting requirements spring from the 

in-place operating procedures of the 

business rather than being a matter of 

choice for management. Two points occur 

to us – how much will disclosure be 

opposed by management on the basis of 

commercial confidentiality and how quickly 

will reconfigured segmental information 

flow through into accounting policies 

structured and expressed around 

those policies?’ 


Chapter 3 – Revenue recognition and segmentation 

‘Implementing IFRS 8 

January 2010 saw the Financial Reporting Review 

Panel highlight the challenge of implementing the 

new segmental reporting requirements under 

IFRS 8 ‘Operating segments’; the Panel 

encouraged companies to test their initial 

conclusions about their segmental reporting by 

considering the following questions: 

1. What are the key operating decisions made in 

running the business? 

2. Who makes these key operating decisions? 

3. Who are the segment managers (as defined in 

the standard) and who do they report to? 

4. How are the group’s activities reported in the 

information used by management to review 

performance and make resource allocation 

decisions between segments? 

5. Is any proposed aggregation of operating 

segments into one reportable segment 

supported by the aggregation criteria in 

the standard, including consistency with the 

core principle? 

6. Is the information about reportable 

segments based on IFRS measures or on 

an alternative basis? 

7. Have the reported segment amounts been 

reconciled to the IFRS aggregate amounts? 

8. Do the accounts describe the factors used to 

identify the reportable segments including the 

basis on which the company is organised?’ 

IAS 14 required companies to identify their primary segment reporting format as either a business segment or a geographical 

segment based on the dominant source and nature of the company’s risks and returns. The table below sets out the segmentation 

by sub-sector. 

Table 10. Segmentation by sub-sector 

Audio & Advertising & Publishing & 

televisual marketing services events Other Total 

Geographical as primary 9 17 8 7 41 

Business as primary 7 14 13 1 35 

TOTAL 16 31 21 8 76 

Not reporting segmentation (single market/country/chose not to) 47 

123 


Even in what are relatively small sub-sectors there was a broad range of business segments disclosed by companies. We have 

grouped these below for information. 

Table 11. Analysis of business segmentation by reported activity 


No. of companies 



Advertising & 

marketing services 


TV/Film production/Content creation 13 

Exploitation/Distribution (sales) 7 

Licensing/Merchandising/ 

Consumer products/DVD 5 

Broadcasting/Outdoor 4 

Unallocated 3 

Corporate 3 

Wholesale subscription 2 

Gaming/Betting 2 

Music 2 

Retail subscription 1 

Advertising 1 

Installation, hardware and service 1 

Theatrical 1 

Digital/Online 1 

Executive producer fees 1 

Sales commissions 1 

Recoverable project cost 1 

Segmentation by specific market sector 9 

Newspapers and information services 6 

Publishing 5 

Digital/Online/Interactive 5 

Events 4 

Book publishing 2 

Contract/Co-publishing 2 

Intermediary 2 

Exhibitions/Conferences 2 

Advertising/Sales promotions 2 

Corporate/Central 1 

Unallocated 1 

Consultancy/Business/Design services 11 

Segmentation by specific market sector 8 

Online marketing and media 7 

PR/IR 6 

Branding, media/response 

communications 5 

Technology & Data 4 

Advertising & Media buying 4 

Market research 4 

Direct marketing 4 

Central 3 

Publishing & events 3 

Unallocated 2 

B2B 2 

B2C 2 

Loyalty & Partnership/CRM 2 

Broadcast 1 

Tactical sales promotion 1 

Promotional marketing 1 

Multi-channel marketing 1 

We have looked at the reporting of revenue recognition policies under IAS 18 to see if these have differed widely from those in 

use prior to the adoption of International Accounting Standards. We have also looked at the interaction between segmental 

analyses and revenue recognition policies – does the terminology from one flow through to the other so that the reader can 

understand (a) the areas in which the business operates, and (b) how it measures its revenues in each of those areas? 

Or are these disjointed, giving the reader no real clue as to how the business comes together? 



Audio & televisual companies revenue analysis 

Of the 37 companies in this sub-sector, six are on the main market 

with the balance on AIM, although two (RDF and The Local 

Radio Company) have been taken private in the last year and one 

(Entertainment Rights) is no longer trading. 

We selected ten companies to examine 

revenue recognition policies in greater 

depth. These are: 

Company 

BSkyB 

ITV plc 

RDF Media Group Limited 

Entertainment Rights plc* 

Shed Media plc 

Eros International plc 

DCD Media plc 

ContentFilm plc 

Boomerang Plus plc 

DQ Entertainment plc 

*now in administration 

AIM/FTSE 

FTSE 

FTSE 

AIM 

FTSE 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

Of the ten companies, eight give a 

primary segmental analysis of revenues 

by business type. Of the remainder, 

Boomerang’s principal activity is 

television production; no analysis is 

given. Presumably the other activities 

referred to in its business review of 

facilities and talent management are not 

material. As all activity is UK based, 

Boomerang has no need to give any 

geographical analysis. Entertainment 

Rights also claimed a single activity, 

but provided a geographical analysis. 

The opening of the introduction to the 

business, objectives and strategy of 

British Sky Broadcasting Group 

(BSkyB) reads: 

‘British Sky Broadcasting Group plc and its 

subsidiaries (the ‘‘Group’’) operate the leading pay 

television broadcast service in the UK and Ireland 

as well as broadband and telephony services. 

We acquire and commission programming to 

broadcast on our own channels and supply 

certain of those channels to cable operators for 

retransmission by the cable operators to their 

subscribers in the UK and Ireland. We retail 

channels (both our own and third parties’) to 

DTH subscribers and certain of our own channels 

to a limited number of DSL subscribers 

(reference in this Annual Report to the number 

of ‘‘DTH subscribers’’ includes the number of 

DSL subscribers to whom Sky retails its 

content directly).’ 


The revenue recognition note in BSkyB’s 

accounting policies reads: 


‘Revenue, which excludes value added tax and 

transactions between Group companies, 

represents the gross inflow of economic benefit 

from Sky’s operating activities. The Group’s main 

sources of revenue are recognised as follows: 

–– Retail subscription revenue, including 

subscriptions for Sky TV, Sky Broadband and 

Sky Talk services, is recognised as the goods 

or services are provided, net of any discount 

given. Pay-per-view revenue is recognised 

when the event or movie is viewed 

–– Wholesale revenue is recognised as the 

services are provided to the cable retailers 

and is based on the number of subscribers 

taking the Sky channels, as reported to the 

Group by the cable retailers, and the 

applicable rate card or contract 

–– Advertising sales revenue is recognised when 

the advertising is broadcast. Revenue 

generated from airtime sales, where Sky acts 

as an agent on behalf of third parties, is 

recognised on a net commission basis 

–– Sky Bet revenue is recognised in accordance 

with IAS 39. Sky Bet revenue represents 

income in the period for betting and gaming 

activities, defined as amounts staked by 

customers less winnings paid out 

–– Installation, hardware and service revenue is 

recognised in the income statement when the 

goods and services are delivered 

Although ITV’s revenue policy is clear and simple, 

it does not directly tie back to the segmental analysis. 

–– Other revenue principally includes income 

from Sky Active, Sky Card, Sky Mobile TV, 

technical platform services, Easynet 

Enterprise and Amstrad. Other revenue is 

recognised, net of any discount given, when 

the relevant goods or service are provided. 

Revenue is measured at the fair value of the 

consideration received or receivable 

When the Group sells a set-top box, installation 

or service and a subscription in one bundled 

transaction, the Group allocates the total 

arrangement consideration to the different 

individual elements based on their relative fair 

values. Management determines the fair value of 

individual elements based on vendor specific or 

third party evidence. The amount of revenue the 

Group recognises for delivered elements is 

limited to the cash received.’ 

The policy ties back perfectly to the 

segmental analysis. There are no 

surprises in the policies although the 

referencing of ‘Sky Bet revenues’ back 

to IAS 39 is not a particularly helpful 

short-cut as it gives no disclosure of the 

requirements of that standard. 

The other broadcaster in our sample 

is ITV. ITV’s recognition policy reads 

as follows: 

‘Revenue is stated exclusive of VAT and consists 

of sales of goods and services to third parties. 

Revenue from the sale of goods is recognised 

when the Group has transferred the significant 

risks and rewards of ownership and control of 

the goods sold and the amount of revenue can 

be measured reliably. Key classes of revenue 

are recognised on the following bases: 

–– Advertising and sponsorship on transmission 

–– Programme production on delivery 

–– Programme rights when contracted and 

available for exploitation 

–– Participation revenues as the service 

is provided 

–– Revenue on barter transactions is recognised 

only when the goods or services being 

exchanged are of a dissimilar nature’ 



While the Group’s segmental analysis 

reads as follows: 

RDF Media’s accounting policy in respect 

of revenue recognition is as follows: 

‘The Management Committee considers the 

business primarily from a product perspective. 

The reportable segments are therefore 

Broadcasting, Global Content, Online and Other. 

All of the segments reported meet the 

quantitative thresholds required by IFRS 8, 

which the Group first adopted in 2007. 

Management has determined the reportable 

segments based on the reports reviewed by the 

Management Committee. The Management 

Committee comprises the executive directors. 

Broadcasting is responsible for commissioning 

and scheduling programmes on the ITV channels, 

marketing and programme publicity. It derives its 

revenue primarily from the sale of advertising 

airtime and sponsorship. Other sources of 

revenue are from premium rate services and the 

digital terrestrial multiplex SDN. The Broadcasting 

segment also includes the investment in stv 

group plc (formerly SMG plc). 

Global Content derives its revenue primarily from 

ITV Studios in the UK (a commercial production 

company), international production centres in 

America, Germany, Sweden and Australia and the 

businesses in ITV Global Entertainment (‘IGEL’). 

A proportion of revenue is generated internally 

via programme sales to the Broadcasting 

segment. IGEL sells programming and exploits 

merchandising and licensing worldwide, and is a 

distributor of DVD entertainment in the UK. 

Online derives its revenue from two main areas: 

broadband and mobile. Broadband includes 

itvlocal.com, itv.com and Friends Reunited. 

Mobile manages ITV’s mobile portal and arranges 

distribution of ITV’s channels and content on 

mobile networks. 

Other comprises the Group’s 100% interest in 

Carlton Screen Advertising (‘CSA’), which sells 

cinema screen advertising in the UK, and its 

50% interest in Screenvision, which operates 

cinema screen advertising businesses in 

continental Europe and the United States.’ 

Although ITV’s revenue policy is clear 

and simple, it does not directly tie back 

to the segmental analysis. Advertising 

and Sponsorship relate to the 

Broadcasting activity and Programme 

Production and Programme Rights tie 

back to Global Content, but ITV does 

not explain what segments are affected 

by Participation Revenues and Barter 

Transactions. Also, it is not clear what 

part of the policy covers the activities 

of online. 

‘Revenue 

Revenue is measured by reference to the fair 

value of consideration received or receivable 

from customers. 

Production 

Production revenue comprises broadcaster 

licence fees and other pre-sales receivable for 

work carried out in producing television 

programmes. Production revenue is recognised 

over the period of the production. Gross profit on 

production activity is recognised over the period 

of the production and in accordance with the 

underlying contract. Overspends on productions 

are recognised as they arise and underspends 

are recognised on completion of the productions. 

Distribution 

Revenue arises from the distribution or other 

exploitation by the Group of programmes 

produced by third parties or by the Group, or 

from the distribution by third parties of 

programmes produced by the Group. Revenue is 

recognised when receivable. For completed 

programmes distributed by the Group, the 

directors consider revenue to be receivable when 

the following conditions have been met: 

–– contractual terms have been agreed 

–– the contracted sum has been invoiced 

–– the programme is complete and delivered or 

available for delivery. 

For programmes distributed by third parties, 

the directors consider that revenue is receivable 

when the Group has been notified of sums due 

to it.’ 

The RDF policy also deals with the contemporary 

issues around television programme funding. 


Other 

‘Where costs are incurred to produce certain 

programmes or series where significant 

contribution is anticipated to come not solely 

from the initial broadcast licence over the 

production period, but also from worldwide 

distribution and exploitation over several years, 

the Group has adopted an accounting policy 

whereby the total costs of production are 

amortised between the contribution derived 

from the initial licence fee and from future 

anticipated exploitation. 

Production and licence revenues are recognised 

on a straight line basis over the length of the 

production as are the costs associated with 

them. Revenues from exploitation are recognised 

in line with the Group’s existing policy with the 

balance of production costs amortised in line with 

revenues recognised versus total anticipated 

forecasted revenues. The forecasted future 

exploitation revenues are reviewed regularly to 

ensure the forecasted gross contribution 

exceeds the balance of capitalized cost. Where 

future forecasted revenues reduce permanently 

versus original estimates, the rate of 

amortisation increases. Where future forecasted 

revenues increase, the rate of amortisation will 

remain as originally estimated. 

The rationale for the adoption of the new 

approach, where applicable, is that the Group is 

entering into diverse production models in terms 

of revenue structures, time being invested to 

produce the content and the ultimate value of the 

content to the Group. The advantage with this 

policy is that it more closely matches the costs 

incurred to produce the asset with the revenues 

it ultimately will generate.’ 

This policy demonstrates the traditional 

fundamental difference between the 

production and distribution models. 

Production revenue is recognised over 

the production period, acknowledging 

that the activity of creating a 

commissioned work gives rise to revenue 

arising across that period. On the other 

hand, distribution income is recognised 

at a single point in time when a number 

of contractual conditions have all 

been met. 

The RDF policy also deals with the 

contemporary issues of television 

programme funding. This has been 

brought about by the reduction in 

television audiences leading to a 

reduction of advertising spend and a 

consequent squeeze by UK broadcasters 

on spend-per-hour on programming. 

This has led to producers having to fund 

an increasing proportion of their 

programme budgets from elsewhere – 

often from distribution advances. 

RDF’s position as producer and 

distributor enables it to partly self-fund 

programmes on the basis of future 

expected distribution revenues. 

It recognises pre-contracted 

(eg commissioning broadcaster) 

revenue on such programmes during 

the production process, and the balance 

as it arises on future sales during the 

distribution cycle. As a matter of 

interest, where there is significant 

income forecasted from worldwide 

exploitation, it apportions the 

programme cost across the total expected 

income and amortises it accordingly. 

RDF recognises ‘production’ and 

‘exploitation of programme rights’ as its 

principal business segments, and these fit 

in with the revenue recognition policies 

of production and distribution. 

Entertainment Rights defined a single 

business segment: 

‘The Group’s activities are in one business 

segment, namely the commercialisation of 

children’s characters and brands. There are no 

other significant classes of business, either 

singularly or in aggregate.’ 

Although having a single business 

segment, Entertainment Rights went on 

to define two types of revenue to be 

recognised, firstly television distribution 

and production and secondly consumer 

products: licensing and video, as follows: 

Television distribution and production 

‘Income recognised represents the value of 

licence fees including withholding tax but 

excluding VAT. The Group’s policy is to recognise 

the income and associated royalty payable when 

all of the following criteria are met: 

• a licence agreement has been signed by 

both parties; 

• the licensee is able to freely exploit its rights; 

• the licensor has no remaining performance 

obligations; 

• the arrangement is fixed and determinable; 

• collection of the arrangement fee is 

reasonably assured; and 

• delivery to the broadcaster has occurred. 

Any licence fees received in advance which do 

not meet all of the above criteria are included in 

deferred income until the above criteria are met. 



Consumer products: licensing and video 

Revenue from licence and video sales is 

recognised on the date that the licence revenue 

is contracted or royalties declared by licensees. 

Up-front fixed fees are recognised as revenue on 

contract signature if the following additional 

criteria are met: 

–– The contract is non-cancellable; 

–– The licensee is able to exploit its rights freely; 

and 

–– The Company has no significant remaining 

obligations to perform under the contract’ 

Of the two types of revenue shown 

(in the single business segment of 

Entertainment Rights), the first, 

television distribution and production, 

is recognised as two separate business 

segments by four of the other companies 

sampled. So within a single segment 

Entertainment Rights had what most 

other companies would probably have 

described as three different segments. 

Was Entertainment Rights being too coy 

with its lack of analysis? Its subsequent 

descent into insolvency means that we 

shall never find out. 

Shed Media recognises three business 

segments; Broadcasting UK, 

Broadcasting US (both involving 

programme production) and Sales of 

IP rights (income from secondary 

distribution). Although a mix of type of 

business and geography, this is explained 

as follows: 

‘Management has determined the operating 

segments based on the reports reviewed by the 

Board that are used to make strategic decisions. 

The Board considers the business by type of 

revenue and geographic location. The Group 

primarily operates through its offices in London 

and Brighton UK and in Los Angeles, USA but 

sells the rights to its programmes worldwide. 

The Group differentiates between newly 

commissioned production revenue both in the UK 

and the US and revenue arising from the sale of 

the rights of the Group’s library (Intellectual 

Property (IP) Revenue). Central costs segment 

represents the cost of the head office function. 

This operates as an independent function to the 

trading businesses. 

The Board assesses the performance of the 

operating segments based on a measure of 

adjusted EBITDA.’ 

The combination of business type and 

geography into a single segmental 

analysis is a logical way of presenting 

the results of Shed. Its policy on revenue 

recognition closely mirrors the business 

segmentation. There are no surprises 

within its revenue policy, which is 

as follows: 

‘Revenue represents amounts receivable for work 

carried out in producing television programmes 

and is recognised on the basis of the value of 

costs related to production activity. Revenue also 

includes sums receivable from the exploitation 

of programmes in which the Group owns rights. 

Gross profit on production activity is recognised 

based upon the stage of completion of the 

production and in accordance with the 

underlying contract.’ 

‘For distribution income the amount recognised in 

the profit and loss account represents the value 

of the licence fees including withholding tax but 

excluding Value Added Tax.’ 

Distribution income is recognised when: 

–– an agreement is contracted 

–– the arrangement is fixed and determinable. 

And for finished programme sales when the 

programme is delivered.’ 

Eros International recognises three 

business segments: 

• theatrical 

• home entertainment 

• television syndication. 

These represent the exploitation of 

filmed content through (currently) 

the three most lucrative media. 

Its accounting policy on revenue 

recognition is as follows: 

‘Revenue recognised represents the value of the 

licence fee and includes withholding tax but 

excludes sales taxes. It is recognised once the 

following criteria are met: 

–– there is persuasive evidence of a sale or 

licensing arrangement agreement 

–– the film is complete and available for delivery 

–– collection of the revenue is reasonably 

assured 

–– the fee is fixed and determinable. 

The following additional criteria apply in respect 

of these revenue streams: 

Theatrical – Revenue is stated at the minimum 

guarantee due, where applicable, plus the 

declared Group’s share of box office receipts in 

excess of the minimum guarantee. 

Digital and Home entertainment – DVD, CD 

and Video revenue is recognised on the date 

the licence revenue is contracted or declared. 

Provision is made for returns where applicable. 

New media revenues are recognised at 

the earlier of when the content is accessed 

or declared.’ 


These are clearly set out policies, once 

again linked into the segmental analysis. 

Much of the language used is from the 

US standard SOP-002, so phrases such 

as ‘persuasive evidence’ may not 

immediately resonate with UK users, 

but the intention is clear. 

DCD Media segments its activities into 

programme production, programme 

distribution and DVD sales (there are 

two further segments of Internet/TV 

broadcasting and Educational music 

courses, but revenues were insignificant). 

Revenue Recognition 

‘Production revenue represents amounts 

receivable from producing programme content 

and is recognised over the period of the 

production in accordance with the underlying 

signed contract. The revenue is recognised 

through the different stages of production, 

including pre-production, filming, post-production 

and delivery to the commissioning broadcaster. 

The assessment of the stage of completion is 

made by reference to production costs incurred 

and after consultation with production staff. 

Attributable profit is calculated by recognising all 

appropriate costs up to the stage of production 

completion, and amortising production costs in 

the proportion that the revenue recognised in the 

period bears to estimated total revenue from 

the programme. The carrying value of 

programme costs in the balance sheet is 

subject to an annual impairment review. 

Where productions are in progress at the period 

end and where billing exceeds the value of work 

done, the excess is classified as deferred 

income and is shown within trade payables. 

Distribution revenue arises from the licencing of 

programme rights which have been obtained 

under distribution agreements with either 

external parties or Group companies. 

Distribution revenue is recognised in the 

income statement on signature of the licence 

agreement, and represents amounts receivable 

on such contracts.’ 

‘Revenue from sales of DVDs and other sales is 

the amounts receivable from invoiced sales 

during the year.’ 

Once again, the policy ties in with the 

segmental analysis. DCD’s distribution 

policy lacks real depth of explanation 

compared with some other companies 

surveyed. 

The principal business segments of 

ContentFilm are International Sales, 

US Home Entertainment Distribution 

and Film Production. It also recognises 

UK Distribution and Licensing and 

merchandising as segments, but these 

contribute insignificant levels of 

revenues. 

Its policy of revenue recognition is: 

‘Revenue is measured by reference to the fair 

value of consideration received or receivable by 

the group for goods supplied and services 

provided, excluding value added tax and trade 

discounts. Revenue is recognised upon the 

performance of services or transfer of risk to 

the customer. 

Income from the exploitation of film and television 

rights is recognised based upon the contractual 

terms of each agreement. Income is recognised 

on a receivable basis where there is reasonable 

contractual certainty that the revenue is 

receivable and will be received. In circumstances 

where the income is dependent on the fulfilment 

of further contractual obligations, income is 

recognised when the Group has performed the 

obligations necessary under the contract to fulfil 

those contractual obligations. 

In respect of the supply of DVD, video and audio 

inventory, income is recognised at the point at 

which goods are despatched and recorded net of 

sales returns.’ 

The first paragraph of the policy is 

generic wording straight from the 

standard. The second paragraph covers 

the International Sales aspect of the 

business and the third paragraph relates 

to DVD sales, the activity of the US 

Home Entertainment business. 

Boomerang’s segmental analysis is 

limited to the following statement: 

‘A business segment is a group of assets and 

operations engaged in providing services that 

are subject to risks and returns that are different 

from those of other business segments. 

The principal activity of the group is that of 

independent television production. The customer 

base and distribution channels for each group 

company are the same so that for the purposes 

of IAS 14 Segment Reporting, the consolidated 

entity operates in one business segment. 

As the group only operates in one business 

segment, no additional business segmental 

analysis has been shown. 

All business activities are located within the UK 

and therefore the group operates in a single 

geographical segment.’ 



In its business review, Boomerang 

describes its activities as being in six 

genres of television production, as well 

as being active in Post-Production, 

Radio, Talent Management and Digital 

Media. The segmental analysis and 

business review would appear to be 

out of step. 

Boomerang’s revenue recognition 

policy is fairly simple and specific to 

programme production. It reads 

as follows: 

‘Revenue (which excludes VAT) represents 

amounts receivable for work carried out in the 

production and post-production of television and 

radio programmes and is recognised over the 

period of the related activity. Gross profit on 

production activity is recognised over the period 

of the production and in accordance with the 

underlying contract. Cost overspends on 

productions are recognised as they arise and 

cost savings are recognised on completion of 

the productions in line with the underlying 

contractual agreement. Where productions are in 

progress and where sales invoiced exceed the 

cost of work done, the excess is shown as 

deferred income. Where the value of work done 

exceed the invoiced amount, the excess is 

shown as accrued income. When it is probable 

that total production costs will exceed contract 

revenue, the expected loss is recognised as 

an expense immediately.’ 

Elsewhere in the financial statements, 

reference is made to how the business 

amortises programme catalogues. 

However, no reference is made to 

dealing with any revenues arising 

from these catalogues in the revenue 

recognition policy. 

DQ Entertainment segments its business 

into Animation, Gaming and 

Distribution. Its revenue recognition 

policy is as follows: 

i. Production service fee and licensing 

revenue 

‘Revenue represents amounts receivable for 

production services rendered and is 

recognised in the income statement in 

proportion to the stage of completion of the 

transaction at the balance sheet date. 

The stage of completion can be measured 

reliably and is assessed by reference to work 

completed as on the balance sheet date. 

The Group uses the services performed to 

date as a percentage of total services to be 

performed as the method for determining 

the stage of completion. 

Where services are in progress and where the 

amounts invoiced exceed the revenue 

recognised, the excess is shown as deferred 

income. Where the revenue recognised 

exceeds the invoiced amount, the amounts 

are classified as unbilled revenue. 

The stage of completion for each project is 

estimated by the management at the onset of 

the project by breaking each project into 

specific activities and estimating the efforts 

required for the completion of each activity. 

Revenue is then allocated to each activity 

based on the proportion of efforts required to 

complete the activity in relation to the overall 

estimated efforts. The management’s 

estimates of the efforts required in relation to 

the stage of completion, determined at the 

onset of the project, are revisited at the 

balance sheet date and any material 

deviations from the initial estimate are 

recognised in the income statement. 

The Group’s services are performed by a 

determinable number of acts over the 

duration of the project and hence revenue is 

not recognised on a straight-line basis. 

Contract costs that are not probable of 

being recovered are recognised as an 

expense immediately. 

Revenue from the licensing of distribution 

rights (including withholding tax) is recognised 

on a straight-line basis over the term of the 

licensing agreement and in the case of the 

license fee from co-production rights on the 

date declared by the licensee. 

No revenue is recognised if there are 

significant uncertainties regarding recovery 

of the consideration due. 

ii. Government grants 

Government grants are not recognised until 

there is reasonable assurance that the Group 

will comply with the conditions attaching to 

them and the grants will be received. Grants 

that compensate the Group for the cost of an 

asset are recognised on receipt by way of 

deduction from the carrying cost of the asset. 

The grant is recognised as income over the 

life of the depreciable asset by way of a 

reduced depreciation charge. Grants that 

compensate the Group for expenses incurred 

are recognised as reduction from relevant 

head of expense in the income statement on 

a systematic basis in the same periods in 

which the expenses are incurred.’ 

Here the focus appears to be on the 

production service activity, with a short 

reference to distribution revenues. 

Information on how the group 

estimates the stage of completion is 

useful in understanding the application 

of the policy. 

There is a reference in the policy to 

government grants. A number of 

governments try to attract animation 

companies to their country in an effort 

to create or sustain an indigenous 

animation industry, principally through 

the operation of tax incentive or grant 

schemes, and this part of the policy 

deals with that (often significant) stream 

of cashflow. 


Publishing & events companies revenue analysis 

Of the 26 companies in this 

sub-sector, 19 are on the 

main market with the balance 

on AIM, although one 

(SPG Group) has delisted 

and one (Expomedia) is no 

longer trading. 

We selected six companies to examine 

revenue recognition policies in greater 

depth. These are: 

is recognised as earned, pro rata on a per-issue 

basis, over the subscription period. Revenues 

earned from book publishing are recognised 

upon passing of control to the buyer.’ 

A very simple, clear and neat policy 

compared with some we have seen in the 

audio & televisual sector. 

Reed Elsevier splits its business into 

four segments, being two publishing 

streams (Elsevier and LexisNexis) and 

two events streams (Reed Exhibitions 

and Reed Business). 

Company 

News Corporation 

Reed Elsevier plc 

Pearson plc 

Yell Group plc 

Future plc 

Bloomsbury Publishing plc 

AIM/FTSE 

FTSE 

FTSE 

FTSE 

FTSE 

FTSE 

FTSE 

Its revenue recognition policy starts with 

a general point: 

‘Revenue represents the invoiced value of 

sales less anticipated returns on transactions 

completed by performance, excluding 

customer sales taxes and sales between the 

combined businesses.’ 

Newscorp’s activities span the contentexploiting 

media sector. Its segmented 

business activities comprise Filmed 

Entertainment, Television, Cable 

Network Programming, Direct 

Broadcast Satellite Television on the 

television and film side and Magazines 

and Inserts, Newspapers and 

Information Services and Book 

Publishing on the publishing side. 

For the purpose of this section on 

publishing, we shall focus on the revenue 

recognition policy relating to the latter 

three activities. Its policy reads: 

‘Newspaper and Information Services, Magazine 

and Inserts and Book Publishing – Advertising 

revenue from newspapers, inserts and 

magazines is recognised when the 

advertisements are published. Subscription 

revenues from the Company’s print and online 

publications and electronic information services 

It goes on to say: 

‘Revenues are recognised for the various 

categories of turnover as follows: 

• subscriptions – on periodic despatch of 

subscribed product or rateably over the 

period of the subscription where performance 

is not measurable by despatch; 

• circulation – on despatch; 

• advertising – on publication or over the period 

of online display; and 

• exhibitions – on occurrence of the exhibition. 

Where sales consist of two or more independent 

components whose value can be reliably 

measured, revenue is recognised on each 

component as it is completed by performance, 

based on attribution of relative value.’ 

52


Again, simple and clear compared with 

audio & televisual, although perhaps 

more detail could be given about 

subscription income not measurable by 

despatch – presumably this would relate 

to online subscriptions. 

The increasing importance of digital publishing, 

together with other forms of online delivery and 

consumption, should add something to the mix. 

The business segmentation of Pearson 

reflects the market sectors in which it 

operates rather than the type of goods or 

service it offers. Its 2008 financial 

statements included early adoption of 

IFRS 8 and the financial overview at the 

front end of these statements tied in to 

the segmental analysis in the body of the 

financial statements. The segments are: 

Education-US, Education-International, 

Professional, FT Publishing, Interactive 

Data and Penguin. Its revenue policy is 

as follows: 

‘Revenue comprises the fair value of the 

consideration received or receivable for the sale 

of goods and services net of value-added tax and 

other sales taxes, rebates and discounts, and 

after eliminating sales within the Group. Revenue 

from the sale of books is recognised when title 

passes. A provision for anticipated returns is 

made based primarily on historical return rates. 

If these estimates do not reflect actual returns 

in future periods then revenues could be 

understated or overstated for a particular period. 

Circulation and advertising revenue is 

recognised when the newspaper or other 

publication is published. Subscription revenue is 

recognised on a straight-line basis over the life of 

the subscription. Where a contractual 

arrangement consists of two or more separate 

elements that can be provided to customers 

either on a stand-alone basis or as an optional 

extra, such as the provision of supplementary 

materials with textbooks, revenue is recognised 

for each element as if it were an individual 

contractual arrangement. 

Revenue from multi-year contractual 

arrangements, such as contracts to process 

qualifying tests for individual professions and 

government departments, is recognised as 

performance occurs. The assumptions, risks, 

and uncertainties inherent in long-term contract 

accounting can affect the amounts and timing of 

revenue and related expenses reported. Certain 

of these arrangements, either as a result of a 

single service spanning more than one reporting 

period or where the contract requires the 

provision of a number of services that together 

constitute a single project, are treated as 

long-term contracts with revenue recognised on a 

percentage of completion basis. Losses on 

contracts are recognised in the period in which 

the loss first becomes foreseeable. Contract 

losses are determined to be the amount by which 

estimated total costs of the contract exceed the 

estimated total revenues that will be generated 

by the contract. 

On certain contracts, where the Group acts as 

agent, only commissions and fees receivable for 

services rendered are recognised as revenue. 

Any third-party costs incurred on behalf of the 

principal that are rechargeable under the 

contractual arrangement are not included 

in revenue. 

Income from recharges of freight and other 

activities which are incidental to the normal 

revenue generating activities is included in 

other income.’ 

Pearson goes into more detail than 

Newscorp or Reed, detailing its returns 

policy for example. The detail in the 

policy is very useful for the user, 

although the policy did not explain 

which parts related to which segment(s). 

Yell carries out the business of 

publishing classified directories. 

It segments its business geographically, 

between the three principal territories in 

which it trades; the US, UK and Spain. 

With effectively a single-stream revenue 

model across a number of territorial 

markets, we would expect a simple 

revenue recognition policy, and the 

company does not disappoint. 

The policy is: 

‘Group revenue, after deduction of sales 

allowances, value added tax and other sales 

taxes, comprises the value of products provided 

by Group undertakings. Revenue from classified 

directories and other directories, mainly 

comprising advertising revenue, is recognised in 

the income statement upon completion of 

delivery to the users of the directories. 

Other revenue, principally from internet and 

voice products, is recognised from the point 

at which service is first provided over the life 

of the contract.’ 


Once again, clear and simple. Only 

when advertisers can derive benefit 

(upon delivery of directories) does 

Yell recognise the revenues derived 

from them. 

Future is a specialist magazine publisher. 

In 2008, it reported under IAS 14. 

Its primary segmental analysis is 

geographical, splitting operations 

between UK and US. It has a secondary 

segmental analysis by type of magazine 

publication, between Games (32%), 

Music & Movies (21%), Technology 

(27%) and Active (20%). There is a 

tertiary split by type of service/product 

which is disclosed in the business review, 

as Circulation 60%, Advertising 31%, 

Customer publishing 5%, Licensing 

Events and Other 4%. 

All information in the business review 

ties through to the same headings in the 

body of the financial statements. Future’s 

revenue recognition policy starts out in 

generic fashion, but then homes in on 

the service/product types as follows: 

• Event income is recognised when the event 

has taken place 

• Licensing revenue is recognised on the supply 

of the licensed content 

• Other revenue is recognised at the time of 

sale or provision of service’ 

Bloomsbury’s business segmentation is 

considered secondary to its geographic 

segmentation. Although its Chief 

Executive Statement talks of the 

restructuring of the Group into two 

overarching divisions; Specialist and 

Trade, the business segmentation is into 

the product areas of Adult, Children’s 

(falling under the trade division) and 

Reference (under the specialist division). 

It will be interesting to see where it 

goes next year with its segmental 

analysis with the introduction of IFRS 8. 

The increasing importance of digital 

publishing, together with other forms of 

online delivery and consumption, should 

also add something to the mix. Its policy 

on revenue recognition is: 

‘Revenue represents the amount derived from the 

provision of goods, services and rights falling 

within the Group’s ordinary activities, after 

deduction of trade discounts, value added tax 

and anticipated returns. Revenue from book 

publishing is recognised on delivery. Revenue 

from the sale of publishing and distribution rights, 

including film, paperback, electronic, overseas 

publishing rights and sponsorship, is recognised 

on the delivery of the related content. Revenue 

from database contracts is recognised in 

accordance with the stage of completion of 

contractual services provided.’ 

The policy for the publishing side of the 

business is fairly standard, with the 

greatest judgment probably needed 

within the area of anticipated returns. 

Compare Bloomsbury’s disclosure with 

Pearson’s disclosure on returns; the 

latter goes into the detail of the provision 

being based upon historical patterns, 

and warns that deviation from this leads 

to over or underprovisions. 

‘Revenue from the sale of goods is recognised in 

the income statement when the significant risks 

and rewards of ownership have been transferred 

to the buyer. Revenue from services rendered is 

recognised in the income statement once the 

service has been completed. Revenue comprises 

the fair value of the consideration received or 

receivable for the sale of goods and services in 

the ordinary course of the Group’s activities. 

Revenue is shown net of value added tax, 

estimated returns, rebates and discounts and 

after eliminating sales within the Group. 

The following recognition also applies: 

• Magazine newsstand circulation and 

advertising revenue is recognised according 

to the date that the related publication 

goes on sale 



Advertising & marketing services companies revenue analysis 

Of the 44 companies in this sub-sector, eight are on the main market 

with the balance on AIM, although seven (Interactive Prospective 

Targeting, MKM, Research Now, Essentially, Cagney, International 

Marketing & Sales, and Optimisa) have delisted and two (Delling 

Group and Vision Media Group) are no longer trading. 

We selected four companies to examine revenue recognition policies in greater depth. 

These are: 

Company 

WPP plc 

M&C Saatchi plc 

Creston plc 

Aegis Group plc 

AIM/FTSE 

FTSE 

AIM 

FTSE 

FTSE 

The principal activities of companies in 

the advertising & marketing services 

sub-sector, and the revenues that arise 

from these activities, are somewhat 

different from the other sub-sectors we 

have looked at. 

Revenue for audio, televisual and 

publishing is derived from the creation 

and exploitation of ‘content’ IP. In the 

advertising & marketing services arena, 

however, revenues are generated from 

the performance of services for clients. 

These are normally charged on a time, 

contract rate or commission basis. 

Table 12. Billings v Revenue disclosure 

The services provided are either 

internally-generated and labour-based 

(such as creative advertising, public 

relations or research) or are externally 

sourced (such as media buying). 

Consequently, the profile of revenue 

recognition within the advertising & 

marketing services area is a lot closer to 

that of, say, professional service firms 

than television and film companies. 

This can be seen when looking at the 

revenue accounting policy adopted in 

this area. A common yardstick used 

within the advertising world is ‘Billings’ 

as opposed to ‘Revenues’. Billings 

comprise everything an agency invoices 

to its clients, including all media buying 

done by the agency for the client. 

Revenue includes the commissions 

earned on media buying, but is net of the 

cost of media. Most companies in this 

sub-sector report a top-line of ‘Billings’ 

in their income statements, followed 

by ‘Revenue’. 

The table below summarises the 

approach adopted by the four companies 

in our sample. 

Company WPP M&C Saatchi Creston Aegis 

Top line description Billings Billings Turnover (billings) Turnover – amounts 

billed to clients 

Second line Revenue Revenue Revenue Revenue 

Reconciliation between the two No No No No 


WPP provides a definition within 

its financial glossary: 

‘Billings comprise the gross amounts 

billed to clients in respect of commissionbased/fee-based 

income together with 

the total of other fees earned.’ 

M&C Saatchi provides a 

definition within its accounting 

policy linking billings to revenue: 

• ‘Billings represents the gross 

amounts billed to clients in respect 

of revenue earned and other client 

recharges, net of discounts and 

sales taxes 

• Revenue comprises commission and 

fees earned in respect of billings’ 

Creston defines both turnover 

and revenue, but does not link 

the two. 

None of the companies include a figure 

on the face of the income statement for 

the difference between billings and 

revenue. They explain the difference in a 

variety of ways. 

Billings are an industry standard 

measure in advertising and deserve 

recognition within financial statements, 

but should they be disclosed on the 

face of the income statement, as a 

stand-alone number? 

Paragraph 8 of IAS 18 ‘Revenue’ explains 

why gross income from media buying is 

not included within revenue: 

…Similarly, in an agency relationship, the gross 

inflows of economic benefits include amounts 

collected on behalf of the principal and which do 

not result in increases in equity for the entity. 

The amounts collected on behalf of the principal 

are not revenue. Instead, revenue is the amount 

of commission. 

There is no further guidance within 

IAS 18 with respect to disclosure. 

A helpful point was included in 

Paragraph G72 of appendix G to FRS 5: 

Where a seller acts as agent, it is encouraged, 

where practicable, to disclose the gross value of 

sales throughput as additional, non-statutory 

information. Where such disclosure is given, a 

brief explanation of the relationship of recognised 

turnover to the gross value of sales throughput 

should be given. 

Given that WPP is a business covering 

all the bases of the sub-sector, it is a good 

place to start analysing the specific 

policies disclosed. 

Aegis defines turnover and revenue 

in consecutive sentences, creating 

an implied link between the two: 

• ‘Turnover (amounts invoiced to clients) 

represents amounts invoiced for media 

handled by the Group on behalf of 

clients, together with fees invoiced for 

media and research services provided, 

net of discounts, VAT and other sales 

related taxes 

• Revenue is the value of media and 

research fees and commissions earned 

by the Group’ 



WPP provides the following operating 

segmental rationale: 

‘The Group is a leading worldwide communications 

services organisation offering national and 

multinational clients a comprehensive range of 

communications services. 

For management purposes, the Group is 

currently organised into four operating segments 

– Advertising and Media Investment Management; 

Information, Insight & Consultancy; Public 

Relations & Public Affairs; and Branding & 

Identity, Healthcare and Specialist 

Communications. These disciplines are the basis 

on which the Group reports its primary 

information. Operating segments are aggregated 

where they have similar economic 

characteristics, provide similar products and 

services and serve similar clients.’ 

WPP’s revenue recognition policy is 

closely aligned to the operating 

segmental analysis, and reads as follows: 

‘Revenue comprises commission and fees earned 

in respect of amounts billed. Direct costs include 

fees paid to external suppliers where they are 

retained to perform part or all of a specific 

project for a client and the resulting expenditure 

is directly attributable to the revenue earned. 

Revenue is stated exclusive of VAT, sales taxes 

and trade discounts. 

Advertising & Media Investment 

Management 

Revenue is typically derived from commissions 

on media placements and fees for advertising 

services. Revenue may consist of various 

arrangements involving commissions, fees, 

incentive-based revenue or a combination of 

the three, as agreed upon with each client. 

Revenue is recognised when the service is 

performed, in accordance with the terms of the 

contractual arrangement. Incentive-based 

revenue typically comprises both quantitative and 

qualitative elements; on the element related to 

quantitative targets, revenue is recognised when 

the quantitative targets have been achieved; on 

the element related to qualitative targets, 

revenue is recognised when the incentive is 

received or receivable. 

Information, Insight & Consultancy 

Revenue recognised in proportion to the level of 

service performed for market research contracts 

is based on proportional performance. In 

assessing contract performance, both input and 

output criteria are reviewed. Costs incurred are 

used as an objective input measure of 

performance. The primary input of all work 

performed under these arrangements is labour. 

As a result of the relationship between labour and 

cost, there is normally a direct relationship 

between costs incurred and the proportion of the 

contract performed to date. Costs incurred as a 

proportion of expected total costs is used as an 

initial proportional performance measure. 

This indicative proportional performance measure 

is subsequently validated against other more 

subjective criteria (i.e. relevant output measures) 

such as the percentage of interviews completed, 

percentage of reports delivered to a client and 

the achievement of any project milestones 

stipulated in the contract. In the event of 

divergence between the objective and more 

subjective measures, the more subjective 

measures take precedence since these are 

output measures. 

While most of the studies provided in connection 

with the Group’s market research contracts are 

undertaken in response to an individual client’s or 

group of clients’ specifications, in certain 

instances a study may be developed as an 

off-the-shelf product offering sold to a broad 

client base. For these transactions, revenue is 

recognised when the product is delivered. Where 

the terms of transaction provide for licensing the 

product on a subscription basis, revenue is 

recognised over the subscription period on a 

straight-line basis or, if applicable, based on 

usage. Substantially all services are provided on 

a fixed price basis. Pricing may also include a 

provision for a surcharge where the actual 

labour hours incurred in completing a project are 

significantly above the labour hours quoted in the 

project proposal. In instances where this occurs, 

the surcharge will be included in the total 

revenue base on which to measure proportional 

performance when the actual threshold 

is reached provided that collectibility is 

reasonably assured. 

Public Relations & Public Affairs and 

Branding & Identity, Healthcare and 

Specialist Communications 

Revenue is typically derived from retainer fees 

and services to be performed subject to specific 

agreement. Revenue is recognised when the 

service is performed, in accordance with the 

terms of the contractual arrangement. 

Revenue is recognised on long-term contracts, 

if the final outcome can be assessed with 

reasonable certainty, by including in the income 

statement revenue and related costs as contract 

activity progresses.’ 

The WPP policy is comprehensive, 

but the wording is not particularly 

user-friendly. For example the first part 

of the policy on Information, Insight 

and Consultancy regarding market 

research contracts runs for over 

160 words. It could be halved to: 

‘Revenue from market research contracts 

is recognised during the contract on a 

proportional performance basis as the 

client derives benefits. Typical measures 

of deriving benefit include the 

percentage of interviews completed, 

percentage of reports delivered to a 

client or the achievement of any project 

milestones stipulated in the contract. 

Where measures of output like these are 

not available, proportional performance 

is calculated on the basis of the cost of 

work carried out to date compared with 

overall expected cost.’ 


The M&C Saatchi primary segmental 

analysis is geographical. The secondary 

analysis is by business type, split 

between advertising and media buying, 

PR and consulting. 

Its revenue recognition policy is 

as follows: 

‘Billings represents the gross amounts billed to 

clients in respect of revenue earned and other 

client recharges, net of discounts and sales 

taxes. Revenue comprises commission and fees 

earned in respect of billings. Each type of 

revenue is recognised on the following basis: 

a. Project fees are recognised over the period 

of the relevant assignments or agreements, 

in line with incurred costs 

b. Retainer fees are spread over the period of 

the contract on a straight-line basis 

c. Commission on media spend is recognised 

when the advertisements appear in the media’ 

WPP and M&C Saatchi are probably at 

either end of the disclosure spectrum. 

The WPP policy is comprehensive, but 

over complex in places. M&C Saatchi’s 

policy is clear and simple but, unlike 

WPP’s policy, its terminology does not 

tie back to the business segmental 

analysis. Also, does its simplicity mask 

a lack of detail which the reader might 

otherwise find useful? 

Creston divides its business into two 

segments, Insight and Communications. 

Creston’s revenue recognition policy 

differentiates between turnover and 

revenue, and reads as follows: 

Turnover 

‘Turnover represents amounts received or 

receivable from clients, for the rendering of 

services and is stated after deduction of trade 

discounts and excluding value added tax or 

similar sales taxes outside of the United Kingdom. 

Turnover is recognised at fair value as service 

activity progresses on the following basis: 

1. Project fees are recognised over the period 

of the relevant assignments or agreements 

2. Retainer fees are spread over the period of 

the contract on a straight-line basis 

3. Third-party production fees are recognised 

at the point the client accepts delivery of 

each component of a project 

Turnover includes all charges paid to external 

suppliers where they are retained to perform 

part or all of a client assignment. 

Revenue 

Communications 

The revenue derived from commissions on 

media placements, retainer fees, projects and 

fees for creative services are recognised on each 

contract in proportion to the level of services 

performed. The level of services performed are 

assessed based on the relevant criteria including 

proportion of costs incurred, time-based 

recognition for retainers and milestones. 

Incentive-based revenue is recognised when the 

relevant target has been met. 

Insight 

Revenue is derived from fees on research 

assignments. These are recognised on each 

assignment in proportion to the level of 

completion. The level of completion is assessed 

using costs incurred (primarily employment 

costs) as a proportion of total costs. 

On long-term contracts, revenue is recognised 

as contract activity progresses.’ 

Creston’s revenue recognition policy is 

fairly standard. That part dealing with 

turnover looks at Creston’s activities 

from a generic activity perspective. 

That part dealing with revenue looks at 

recognition specifically in each of the 

two business segments. 

Aegis operates in two business 

segments, media communications and 

market research. Its revenue recognition 

policy ties back to each segment 

as follows: 

‘Turnover (amounts invoiced to clients) represents 

amounts invoiced for media handled by the Group 

on behalf of clients, together with fees invoiced 

for media and research services provided, net of 

discounts, VAT and other sales related taxes. 

Revenue is the value of media and research fees 

and commissions earned by the Group. 

Media revenue is recognised when charges are 

made to clients, principally when advertisements 

appear in the media. Fees are recognised over 

the period of the relevant assignments or 

agreements. Performance related income is 

recognised when it can be reliably estimated 

whether, and the extent to which, the 

performance criteria have been met. 

For the market research business, revenue is 

recognised on the satisfactory completion of a 

specific phase of a project. Provision is made for 

losses on a project when identified. Invoices 

raised during the course of a project are booked 

as deferred income on the balance sheet until 

such a time as the related revenue is recognised 

in the income statement.’ 

The wording used here is slightly 

ambiguous, ‘Media revenue is recognised 

when charges are made to clients’ – does 

this mean at the point at which invoices 

are raised? The next phrase: ‘principally 

when advertisements appear in the 

media.’ seems to qualify when Aegis 

makes charges to its clients rather than 

when it recognises income. 



Section Title 

Overall comments & conclusions 


We have analysed film and television 

revenue recognition policies in some 

detail in previous surveys. IFRS does 

not appear to have altered the overall 

approach to revenue recognition policies 

in this sub-sector with any significance. 


Revenue recognition appears to be a 

lot simpler and clearer in the publishing 

& events arena than in the audio & 

televisual. This is probably due to the 

capital costs of content origination in 

film and television being a lot higher 

per project than in publishing. 

Higher project costs lead to more 

complex funding arrangements and the 

creation of sometimes complex IP rights. 

This in turn requires more complicated 

accounting to properly reflect the 

substance of transactions. 


The main issues around revenue 

recognition policies in advertising & 

marketing services are covered off in 

IAS 18, and broadly revolve around the 

nature of services being provided and 

the consequent timing of their 

recognition. The principal points raised 

by this survey concern the question of 

how and where gross billings should 

be disclosed. 

Overall 

A number of points common across all 

sub-sectors need to be addressed: 

The level of policy disclosure 

Do companies look for short, sharp clear 

disclosures in their policies, or use more 

descriptive and detailed policies? Our 

view is: If in doubt, disclose. 

Such disclosure should be a considered 

and relevant summary of how the board 

have interpreted the various Reporting 

Standards in relation to their business. 

Improved cross-referencing between 

segmental analysis and revenue 

recognition policy 

Some companies appear to be adopting 

an absolutely minimum disclosure 

approach to business segmental analysis, 

and their lack of effort is probably not 

welcomed by their stakeholders. 

The additional disclosure required by the 

application of IAS 14 (over the previous 

UK standard) has brought more 

structure and analysis to financial 

statements. Many companies are 

logically cross-referring their segmental 

analysis to their revenue recognition 

policies, and using similar descriptive 

language in both segmental analysis and 

revenue recognition accounting policies. 

This is welcome and its more widespread 

adoption should be encouraged as it 

presents a joined-up approach and makes 

the task of understanding the financial 

statements much easier for the user. 

IFRS 8 presents opportunity to improve 

cross-referencing between the business 

review, segmental analysis and revenue 

recognition 

This joined-up approach extends in 

many cases to the business and divisional 

reviews at the front end of financial 

statements. The requirement of the 

incoming IFRS 8 for segmental analysis 

to mirror management’s own view of the 

different strands of the business should 

in theory make it easier to tie in the 

business review with segmental analyses. 

This form of effective cross-referencing 

should be adopted by all companies for 

the benefit of their stakeholders. 

It presents a great opportunity for 

all companies to improve cross 

referencing between the business review 

at the front of financial statements, the 

segmental analysis in the body of the 

financial statements and the accounting 

policy on revenue recognition. 

Impact of future revenue still unknown 

The development of joined-up, online, 

new-media based products, with more 

complex revenue models, is likely to give 

rise to some interesting revenue 

recognition policies over the coming 

years. The greatest challenge is likely to 

arise from content owners exploiting 

their product across a number of media 

on a variety of fixed and variable revenue 

models under a single contract. 

IFRS in IFRS the Media media Survey sector 59

Appendix 1 

List of companies surveyed 



Company 

AIM/FTSE 

Company 

AIM/FTSE 

Air Music and Media Group plc 

(MBL Group plc) 

Apace Media plc 

Boomerang Plus plc 

BSkyB plc 

Cellcast plc 

Chrysalis plc 

ContentFilm plc 

Coolabi plc 

DCD Media plc 

Dori Media Group Limited 

DQ Entertainment plc 

Entertainment Rights plc † 

Eros International plc 

Galleon Holdings plc 

HandMade plc 

Independent Media Distribution plc 

Intandem Films plc 

ITV plc 

Mama Group plc 

Metrodome Group plc 

Milestone Group plc 

Motive Television plc 

Music Copyright Solutions plc 

(Conexion Media Group plc) 

Pinewood Shepperton plc 

Prime Focus London plc 

RDF Media Group Limited* 

Ten Alps plc 

The Works Media Group plc 

The Indian Film Limited 

The Local Radio Company plc* 

Shed Media plc 

STV Group plc 

Talent Group plc 

UBC Media Group plc 

UTV Media plc 

X-Phonics plc 

Zest Group plc 

AIM 

AIM 

AIM 

FTSE 

AIM 

FTSE 

AIM 

AIM 

AIM 

AIM 

AIM 

FTSE 

AIM 

AIM 

AIM 

AIM 

AIM 

FTSE 

AIM 

AIM 

AIM 

AIM 

AIM 

FTSE 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

FTSE 

AIM 

AIM 

FTSE 

AIM 

AIM 

Bloomsbury Publishing plc 

Cheerful Scout plc 

Daily Mail and General 

Trust plc (DMGT) 

Euromoney Institutional Investor plc 

Expomedia Group plc † 

Future plc 

Haynes Publishing Group plc 

Huveaux plc 

Informa plc 

ITE Group plc 

Johnston Press plc 

Knowledge Technology Solutions plc 

(now Arcontech Group plc) 

Mecom Group plc 

Moneysupermarket.com Group plc 

Motivcom plc 

Pearson plc 

Reed Elsevier 

Rightmove plc 

SPG Media Group plc* 

Tarsus Group plc 

The Quarto Group, Inc 

Trinity Mirror plc 

United Business Media plc 

Vitesse Media plc 

Wilmington Group plc 

Yell Group plc 

†No longer trading 

*Delisted 

FTSE 

AIM 

FTSE 

FTSE 

AIM 

FTSE 

FTSE 

AIM 

FTSE 

FTSE 

FTSE 

AIM 

FTSE 

FTSE 

AIM 

FTSE 

FTSE 

FTSE 

AIM 

FTSE 

FTSE 

FTSE 

FTSE 

AIM 

FTSE 

FTSE 


*Delisted 



Other 

Company 

AIM/FTSE 

Company 

AIM/FTSE 

4imprint Group plc 

Aegis Group plc 

Altitude Group plc 

Avesco Group plc 

BrainJuicer Group plc 

Cagney plc* 

FTSE 

FTSE 

AIM 

AIM 

AIM 

AIM 

Cello Group plc 

AIM 

Centaur Media plc 

FTSE 

Chime Communications plc 

FTSE 

Creston plc 

FTSE 

Delling Group plc † 

AIM 

Digital Marketing Group plc 

AIM 

Ebiquity plc (Thomson Intermedia) AIM 

Ekay (WFCA plc) 

AIM 

Electric Word plc 

AIM 

Essentially Group Ltd* 

AIM 

Freshwater UK plc 

AIM 

Hasgrove plc 

AIM 

Huntsworth plc 

FTSE 

i-design group plc 

AIM 

Immedia Group plc 

AIM 

Infoserve Group plc 

AIM 

Interactive Prospect Targeting 

Holdings plc* 

AIM 

International Marketing & 

Sales Group Ltd* 

AIM 

M&C Saatchi plc 

AIM 

Media Square plc 

AIM 

MKM Group plc* 

AIM 

Next Fifteen Communications Group plc AIM 

Optimisa plc* 

AIM 

Parallel Media Group plc 

AIM 

Phorm Inc 

AIM 

Pixel Interactive Media Ltd 

AIM 

Progressive Digital Media Group plc 

(TMN Group plc) 

AIM 

Research Now plc* 

AIM 

SpaceandPeople plc 

AIM 

The Mission Marketing Group plc AIM 

Thomson Reuters plc 

FTSE 

Touch Group plc 

AIM 

Toluna plc 

AIM 

Totally plc 

AIM 

Twenty plc 

AIM 

Vision Media Group (International) plc † AIM 

WPP plc 

FTSE 

YouGov plc 

AIM 


*Delisted 

Adventis Group plc 

Adwalker plc* 

Avanti Screenmedia Group plc † 

Catalyst Media Group plc 

CSS Stellar plc 

Deal Group Media plc 

(now Asia Digital Holdings plc) 

First Artist Corporation plc 

IncaGold plc 

Infoscreen Networks plc 

Landround plc* 

MediaZest plc 

Mirada plc 

NetPlay TV plc 

Printing.com plc 

Retec Digital plc* 

The Character Group plc 


*Delisted 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 

AIM 


Appendix 2 

Business combinations surveyed 

£m £m £m 



BSkyB plc Amstrad 109.0 104.0 5.0 4.6% 

UTV Media plc FM104 49.0 12 37 75.5% 

HandMade plc HandMade holdings 41.5 9.6 31.9 76.9% 

ITV plc 12 Yard 35.0 31.0 4.0 11.4% 

Shed Media plc Outright/Wall to Wall/Twenty Twenty 47.3 33.6 13.7 29.0% 

DCD Media September/Prospect/West Park 22.4 12.6 9.8 43.8% 

RDF Media Group Limited Foundation/Comedy Unit/Presentable 21.2 7.6 13.6 64.2% 

Mama Group plc Angel Music Group 5.4 2.9 2.5 46.3% 

HandMade plc Sequence films 5.3 2.8 2.5 47.2% 

Mama Group plc Mean Fiddler Holdings/GAY 4.6 4.5 0.1 2.2% 

UTV Media plc Tibus 3.8 3.8 0 0.0% 

Ten Alps plc Mongoose 3.6 2.3 1.3 36.1% 

Ten Alps plc DBDA 3.2 1.9 1.3 40.6% 

Ten Alps plc Sovereign 2.9 2.5 0.4 13.8% 

VTR plc Machine Effects 1.7 1.7 0 0.0% 

Eros International plc Ayngaran 1.0 0 1.0 100.0% 

RDF Media Group Limited History Rights 0.7 0 0.7 100.0% 


Informa plc Datamonitor plc 617.0 385.0 232.0 37.6% 

Moneysupermarket.com Group plc Moneysupermarket.com Financial Group 332.0 125.0 207.0 62.3% 

Pearson plc Harcourt Assessment 314.0 113.0 201.0 64.0% 

Reed Elsevier Buyerzone Inc 303.0 101.0 202.0 66.7% 

Pearson plc eCollege 283.0 181.0 102.0 36.0% 

Reed Elsevier [others 2008] 225.0 117.0 108.0 48.0% 

Pearson plc Harcount Education 165.0 68.0 97.0 58.8% 

Trinity Mirror plc Smart media services/Financial jobs online 104.4 57.7 46.7 44.7% 

United Business Media plc [all 2007 acquisitions] 79.6 58.1 21.5 27.0% 

Pearson plc [others 2007] 71.0 55.0 16.0 22.5% 

United Business Media plc [all 2008 acquisitions] 62.8 44.1 18.7 29.8% 

Pearson plc [others 2008] 51.0 15.0 36.0 70.6% 

Yell plc [various US acquisitions 2008] 43.6 32.6 11.0 25.2% 

Informa plc Haworth press 38.0 7.8 30.2 79.5% 

Pearson plc Money Media 35.0 25.0 10.0 28.6% 

Informa plc [others 2007] 33.8 4.8 29.0 85.8% 

Yell plc [various US acquisitions 2007] 31.9 24.1 7.8 24.5% 

Yell plc Publicom SA 30.9 19.8 11.1 35.9% 

Informa plc Investment Scorecard Inc 30.0 11.0 19.0 63.3% 

United Business Media plc Vintage Filings 26.2 21.0 5.2 19.8% 

Motivcom plc Zibrant 14.3 12.4 1.9 13.3% 

Trinity Mirror plc Totallyfinancial.com 14.0 10.8 3.2 22.9% 

Johnston Press plc Archant 13.4 3.1 10.3 76.9% 

Wilmington Group plc The Matchett Group 12.1 8.9 3.2 26.4% 

62 IFRS Media in the media Surveysector

£m £m £m 


Informa plc 

Multilingual Matters/Keegan Paul/ 

INMEX/Binet exhibitions and others 11.6 2.1 9.5 81.9% 

ITE Group plc Primeexpo Northwest 11.2 4.0 7.2 64.3% 

Informa plc Online congress 10.5 5.2 5.3 50.5% 

Wilmington Group plc AP/Aspire 9.2 4.8 4.4 47.8% 

Wilmington Group plc Mercia Group 8.8 2.5 6.3 71.6% 

ITE Group plc Siberian Fairs 8.3 2.4 5.9 71.1% 

Haynes Publishing plc Vivid Holding 7.2 2.7 4.5 62.5% 

Trinity Mirror plc Rippleffect Studio 6.3 4.5 1.8 28.6% 

Trinity Mirror plc Globespan media 5.9 3.3 2.6 44.1% 

Informa plc Productivity press 5.0 1.4 3.6 72.0% 

Trinity Mirror plc Email4property 5.0 3.5 1.5 30.0% 

Bloomsbury Publishing plc John Wisden 3.1 1.6 1.5 48.4% 

Trinity Mirror plc The Career Engineer 2.2 1.3 0.9 40.9% 

Bloomsbury Publishing plc Oxford International publishers 2.1 1.2 0.9 42.9% 

Bloomsbury Publishing plc Arden Shakespeare 2.1 0.5 1.6 76.2% 

Bloomsbury Publishing plc Featherstone Education 1.1 0.4 0.7 63.6% 


WPP plc Others 152.8 132.4 20.4 13.4% 

Aegis Group plc 14 acquisitions aggregated 151.3 92.2 59.1 39.1% 

Thomson Reuters plc 

Feri Fund Market Information/Clear Market/ 

Thomas Weisel/Arian 56.0 26.0 30.0 53.6% 

M&C Saatchi plc Clear Ideas/Walker Media 45.7 39.9 5.8 12.7% 

The Mission Marketing Group plc Bray Leino 28.8 28.8 0 0.0% 

Chime Communications plc Fast Track Sales 27.9 27.0 0.9 3.2% 

Creston plc Tullo Marshall Warren 27.4 26.9 0.5 1.8% 

Chime Communications plc VCCP and Stuart Francis Whitson 22.8 22.8 0 0.0% 

Interactive Prospect Targeting Holdings plc Directinet/J2P2N 21.9 19.6 2.3 10.5% 

YouGov plc Psychonomics 20.8 13.3 7.5 36.1% 

Huntsworth plc Axis Healthcare 20.5 16.0 4.5 22.0% 

Creston plc ICM Research 18.5 17.6 0.9 4.9% 

Research Now plc Samplenet e-Research Solutions Inc 16.6 16.2 0.4 2.4% 

The Mission Marketing Group plc RLA 15.0 15.0 0 0.0% 

International Marketing & Sales Group Ltd V+O Communications 14.8 14.8 0 0.0% 

Digital Marketing Group plc Alphanumeric (Jaywing) 14.7 10.3 4.4 29.9% 

Huntsworth plc Dorland Corporation 13.0 9.0 4.0 30.8% 

Optimisa plc eq group plc 12.7 12.1 0.6 4.7% 

YouGov plc Polimetrix 12.6 7.0 5.6 44.4% 

Creston plc PAN Advertising 12.5 12.2 0.3 2.4% 

The Mission Marketing Group plc April-Six 12.1 12.1 0 0.0% 

YouGov plc Zapera 12.0 8.5 3.5 29.2% 

International Marketing & Sales Group Ltd Shared Value 10.6 10.6 0 0.0% 

Digital Marketing Group plc Cheeze 10.3 8.9 1.4 13.6% 


Business combinations surveyed 

(continued) 

£m £m £m 


The Mission Marketing Group plc Story UK 10.0 10.0 0 0.0% 

Digital Marketing Group plc Graphico 9.4 6.0 3.4 36.2% 

The Mission Marketing Group plc Bastin Day Westley 9.0 9.0 0 0.0% 

Ekay plc WFCA Integrated 8.5 8.5 0 0.0% 

The Mission Marketing Group plc Big/Fuse 8.4 8.4 0 0.0% 

Cello Group plc SMT consulting 8.3 8.3 0 0.0% 

Digital Marketing Group plc Scope Creative (Dig for Fire) 8.2 5.6 2.6 31.7% 

International Marketing & Sales Group Ltd Zap 8.1 8.1 0 0.0% 

Digital Marketing Group plc HSM Telemarketing 8.0 5.9 2.1 26.3% 

Cello Group plc 2CV 7.9 7.7 0.2 2.5% 

Creston plc Red Door 7.7 7.5 0.2 2.6% 

Cello Group plc MSI 7.5 7.4 0.1 1.3% 

Hasgrove plc Pavillion Communications 7.3 7.3 0 0.0% 

International Marketing & Sales Group Ltd Pragma 6.4 6.4 0 0.0% 

Interactive Prospect Targeting Holdings plc NP6 6.3 5.0 1.3 20.6% 

Centaur Media plc Pro Talk 5.9 3.2 2.7 45.8% 

MKM Group plc Leisure World/Leapfrog 5.1 5.0 0.1 2.0% 

Toluna plc Speedfacts 4.7 3.2 1.5 31.9% 

Centaur Media plc Recruiter 4.0 0.6 3.4 85.0% 

Cello Group plc Hill Murray group 3.8 3.7 0.1 2.6% 

International Marketing & Sales Group Ltd Friends 3.5 3.5 0 0.0% 

Hasgrove plc Odyssey Interactive 3.3 3.3 0 0.0% 

Digital Marketing Group plc Hyperlaunch 3.2 2.0 1.2 37.5% 

Chime Communications plc The Corporate Citizenship company 3.0 3.0 0 0.0% 

International Marketing & Sales Group Ltd BIP 3.0 3.0 0 0.0% 

Hasgrove plc Politics International 2.5 2.5 0 0.0% 

Cello Group plc Magnetic advertising 2.4 2.4 0 0.0% 

Hasgrove plc Amaze 2.4 2.4 0 0.0% 

Cello Group plc Market research international 2.2 2.1 0.1 4.5% 

Chime Communications plc De Facto Communications 1.8 1.8 0 0.0% 

The Mission Marketing Group plc Broadskill 1.7 1.7 0 0.0% 

Twenty plc Ominor 1.6 1.6 0 0.0% 

Centaur Media plc Period Living 1.5 0.1 1.4 93.3% 

Chime Communications plc Stuart Higgins communications 1.5 1.5 0 0.0% 

Hasgrove plc Cabinet Stewart 1.4 1.4 0 0.0% 

Huntsworth plc Grayling International 1.3 1.3 0 0.0% 

Cello Group plc Farm communications 1.2 1.2 0 0.0% 

The Mission Marketing Group plc TMMHL 1.1 1.1 0 0.0% 

Cello Group plc Rosenblatt/Digital online people 1.0 1.0 0 0.0% 

Hasgrove plc Hailstone Creative 1.0 1.0 0 0.0% 

International Marketing & Sales Group Ltd Tarantula 1.0 1.0 0 0.0% 

International Marketing & Sales Group Ltd MAPP & Promer 1.0 1.0 0 0.0% 

Cello Group plc Bankbrae 0.9 0.9 0 0.0% 


£m £m £m 


Interactive Prospect Targeting Holdings plc Direct Excellence 0.6 0.5 0.1 16.7% 

Chime Communications plc Facts International 0.6 0.6 0 0.0% 

The Mission Marketing Group plc PCM 0.5 0.5 0 0.0% 

The Mission Marketing Group plc Rhythmm Communications Group 0.4 0.4 0 0.0% 

Cello Group plc OMP services 0.3 0.3 0 0.0% 

TOTAL 4,329.9 2,545 1,785 41.2% 

WPP plc Taylor Nelson Sofres 1,858.4 1,132.7 725.7 39.0% 

Reed Elsevier ChoicePoint Inc 2,633.0 1,162.0 1,471.0 55.9% 

Yell plc Telefonica Publicidad 2,454.0 1,316.0 1,138.0 46.4% 

TOTAL 11,275.3 6,155.2 5,120.1 45.4% 


Appendix 3 

IFRS for SMEs – how might this affect 

the media sector? 

The ASB plans to replace 

UK Standards with the IFRS for 

SMEs from 2012. How might 

this affect the media sector? 

What is the IFRS for SMEs? 

The International Financial Reporting 

Standard for Small and Medium-sized 

Entities (IFRS for SMEs) is basically a 

simplified version of ‘full IFRS’ 

(International Financial Reporting 

Standards, other than IFRS for SMEs). 

It’s much smaller than full IFRS, being 

just over 200 pages long. There are also 

about 10% of the disclosure 

requirements in full IFRS (about 300 

compared to 3,000 in full IFRS). 

The IFRS for SMEs was designed to 

produce general purpose financial 

statements. It is based on the premise 

that if investors in non-publicly 

accountable companies require 

information in addition to that provided 

in such financial statements, the 

investors can demand that information 

separately. Therefore certain 

requirements which are of benefit to 

some users, such as users of capital 

markets, have been omitted, for example 

segmental reporting. 

The simplification has partly been 

achieved by allowing only one 

accounting policy option, where full 

IFRS allows a choice of options in some 

areas. Because the IFRS for SMEs been 

several years in the making, full IFRS has 

moved on in some areas. This has 

resulted in some unfortunate 

contradictions between IFRS for SMEs 

and full IFRS, as we will see. 

How will the IFRS for SMEs apply in 

the UK? 

The ASB (Accounting Standards Board) 

proposes replacing existing UK GAAP 

with a new, differential reporting regime 

based on public accountability, and 

incorporating the IFRS for SMEs. 

These plans aren’t finalised yet, but a 

decision is expected in mid-2010. 

The change is planned for financial years 

beginning on or after 1 January 2012 

(which would require 2011 comparatives 

and 2010 closing balances to be restated). 

What companies will be affected? 

The ASB proposes the following 

approach: 

Tier 1 

Publicly accountable 

entities 

Tier 2 

Non-publicly 

accountable entities 

Tier 3 

Small entities 

Full IFRS 

IFRS 

for SMEs 

FRSSE 

Any entity could elect to use the GAAP 

of a higher tier, for example a Tier 3 

entity could chose to adopt IFRS for 

SMEs or full IFRS. 

• In the near future, current UK GAAP is 

likely to be replaced with IFRS for SMEs 

for non-publicly accountable companies 

other than small ones 

• IFRS for SMEs does not allow certain 

accounting treatments, such as 

capitalising internally generated 

intangible assets or capitalising 

borrowing costs, which are relevant to 

the media sector 

• Companies could choose to adopt full 

IFRS instead, and this may be a better 

option for some 

What is a ‘publicly accountable entity’? 

The ASB proposals contain a definition 

of ‘publicly accountable’. It will include 

companies with debt or equity 

instruments traded in a public market 

(including non-regulated markets, such 

as AIM and PLUS) or companies in the 

process of issuing such instruments. 

It will also include companies which take 

deposits and/or hold assets in a fiduciary 

capacity as one of their primary 

businesses (such as banks). 

What are the GAAP options? 

Companies can chose to adopt full 

IFRS rather than IFRS for SMEs. 

This could be an advantage where the 

IFRS for SMEs requires certain 

accounting treatments which could be 

seen to have a negative impact on the 

financial statements. 


In particular, if a company’s peers and 

competitors are using full IFRS, either 

because they are publicly accountable or 

because they choose to, using IFRS for 

SMEs may mean that it is more difficult 

to compare results and balance sheets. 

What are the major issues? 

The major differences between 

UK GAAP, IFRS for SMEs and full 

IFRS which may affect companies in the 

media sector particularly are set out in 

the table overleaf. 

However, adoption of full IFRS does 

have the well-known disadvantage of 

more (and ever-increasing) disclosure 

requirements. Financial instruments is 

one example, where IFRS 7 requires 

many disclosures of different aspects, 

such as categories of financial 

instruments, maturity analysis, aging 

analysis of financial assets, explanations 

and sensitivity analysis for financial risks 

and analysis of the methods of 

calculation of any fair values used. 

IFRS for SMEs does require some 

disclosures for financial instruments, 

but these are limited to a fraction of 

those in full IFRS (a few paragraphs of 

requirements rather than a 40-plus 

paragraph long, separate standard). 

IFRS for SMEs has been written in a 

style which is easier to understand than 

full IFRS. Also making life easier is the 

plan to change the IFRS for SMEs only 

once every three years, which would 

make it a more stable reporting 

structure than full IFRS. 


Area of difference UK GAAP IFRS for SMEs Full IFRS 


Requirements of UK 

standards, IFRS for SMEs 

and full IFRS do not differ 

substantially. 









Segmental information 

SSAP 25 ‘Segmental 

Reporting’ gives the following 

exemptions which do not 

appear in IFRS: 

– an entity need not disclose 

segmental information if it is 

deemed seriously prejudicial 

to its interests 

– an entity need not disclose 

turnover segmentally if it is 

not required by statute to 

disclose turnover 

– a subsidiary (that is not a 

plc) need not make disclosure 

if its parent does so. 

No segmental reporting 

required. 

IAS 14 and IFRS 8 apply – 

see page 42. 

Internally generated 

intangible assets 

Under UK GAAP (FRS 10), 

internally developed intangible 

assets can only be capitalised 

if there is a readily 

ascertainable market value, 

which is highly unlikely to be 

the case. Therefore, these 

have often been capitalised 

as development costs under 

SSAP 13, when the 

requirements for feasibility, 

viability, etc are met. SSAP 

13 allows, but does not 

require capitalisation. 

IFRS for SMEs is explicit in 

stating that any expenditure 

incurred internally on an 

intangible item is expensed, 

and cannot be capitalised. 

This includes any research 

and development costs. 

Under full IFRS, IAS 38 

requires capitalisation of 

development costs as 

intangible assets, when they 

meet certain strict criteria. 

However, it does specifically 

rule out recognising internally 

generated brands, 

mastheads, publishing titles, 

customer lists and similar 

items, on the grounds that 

the expenditure on such 

items cannot be distinguished 

from the cost of developing 

the business as a whole. 

So, where a company has 

internally generated 

intangible assets which 

meet the criteria for 

recognition in IAS 38, it 

may be beneficial to adopt 

full IFRS to allow them to 

be included on the 



Area of difference UK GAAP IFRS for SMEs Full IFRS 

Intangible assets acquired in a 

business combination 

UK GAAP requires intangible 

assets to be separable, that is 

to say they are capable of 

being disposed of or settled 

separately, without disposing 

of part of the business. 

After the acquisition, 

intangible assets are usually 

measured at cost. They may 

be measured at a revalued 

amount if they have a readily 

ascertainable market value. 

IFRS for SMEs takes the same 

approach as full IFRS, under 

IFRS 3. Acquired intangible 

assets are recognised if they 

are either separable from 

the business or if they 

arise from contractual or 

legal rights, and when the 

fair value can be measured 

reliably. 

However, once the intangible 

assets have been recognised 

under IFRS for SMEs, they 

must be measured at cost. 

No revaluations are permitted. 

Acquired intangible assets 

are recognised if they are 

either separable from the 

business or if they arise 

from contractual or legal 

rights, and when the fair 

value can be measured 

reliably. 

After the acquisition, IFRS 

allows them to be measured 

either at cost or at a 

revalued amount. 

The disclosure 

requirements for business 

combinations under IFRS 

for SMEs are much more 

straightforward, 

concentrating on the 

numerical facts, such as the 

cost of combination, and 

omitting much of the narrative 

and explanation required by 

full IFRS. 

Amortisation of goodwill and 

intangible assets 

Under UK GAAP, for both 

intangible assets and 

goodwill, there is a rebuttable 

presumption that the useful 

life will not exceed 20 years. 

This has meant in practice 

that if the useful life is long 

but uncertain, these assets 

have been amortised over 

20 years. 

IFRS for SMEs requires 

amortisation of both intangible 

assets and goodwill over a 

finite life. When a reliable 

estimate cannot be made, the 

asset should be amortised 

over 10 years. 

IFRS for SMEs has the 

advantage of not requiring 

annual impairment testing. 

In addition, no disclosure is 

required beyond the 

amount of any impairment, 

compared to the reams of 

information about the 

impairment methodology 

required by IAS 36. 

IFRS allows either a definite 

or an indefinite useful life for 

intangible assets, and does 

not allow amortisation of 

goodwill or indefinite-life 

intangible assets. Instead, 

goodwill and intangible 

assets with an indefinite-life 

have to be tested for 

impairment annually. 

Full IFRS allows an 

indefinite-life, therefore 

allowing certain assets to 

hold their balance sheet 

value for longer. 


Appendix 4 

Sale and leaseback revisited 

Our survey published in 2002 

commented on the accounting for sale 

and leaseback transactions under UK 

accounting standards. We thought it 

would be useful to revisit this area 

under IFRS. 

ITV recognise their sale and leaseback 

obligations, which comprise the 

principal and accrued interest, within 

borrowings on the balance sheet. 

The finance element of the agreement is 

charged to the income statement over 

the term of the lease on a systematic 

basis. Sale and leaseback obligations 

are secured against an equivalent cash 

balance held within cash and 

cash equivalents. 

RDF Media, Shed Media and DCD Media 

derecognised their sale and leaseback 

obligations and associated cash balances. 

Each used the same basis on which to 

do so. RDF’s policy stated that the 

Group had entered into: 

‘certain sale and leaseback transactions of 

television programme rights. Funds received 

from these transactions are held in deposit 

accounts and comprise monies to provide for 

the full discharge of future leasing liabilities. 

The banks with which these sums are deposited 

have given guarantees to the lessors in respect 

of the lease liabilities. Further: 

a. the Group is not able to control the deposit 

account in pursuit of its own objectives and 

any payments under the lease are due out of 

this restricted account. The Group has neither 

control over the bank balance nor over any 

interest earned thereon; 

b. the risk of reimbursing the amount of fee 

receivable by the Group in respect of tax 

losses transferred and the risk of paying an 

amount due under the guarantee in case of 

collapse of the bank holding the deposit are 

remote; and 

c. other than the initial cash flows at inception 

of the arrangement, the only cash flows 

expected under this arrangement are the 

lease payments satisfied solely from funds 

withdrawn from the separate account 

established for this arrangement. 

Adding additional disclosure, the 

directors added in the significant 

estimates and judgments section that: 

‘the Group has determined that, under IAS 39 

‘Financial Instruments: Recognition & 

Measurement’, each sale and leaseback 

transaction entered into by the Group has, 

from inception, failed to meet the definition of an 

asset and liability and has therefore not been 

recognised in these financial statements. 

The Group has applied guidance from SIC-27 

‘Evaluating the Substance of Transactions 

Involving the Legal Form of a Lease’.’ 

Given the above, the asset and the liability in 

respect of the sale and leaseback transactions 

do not represent an asset and a liability of the 

Group according to SIC-27 ‘Evaluating the 

Substance of Transactions Involving the Legal 

Form of a Lease’, and have not been recognised 

in these financial statements.’ 


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